Micro Cradit Schemes in  Agriculture Sector
CREDIT & MICROFINANACE IN   AGRICULTURE SECTOR
Fact Sheet: Agri-Sector•   Life-line of Economy•   24% of GDP•   48.4% of the Labour Force•   70% of Forex earning through...
Introduction• Microcredit Summit (2-4 February 1997)• “Small loans to very poor people for self-employment  projects that ...
Contd….• Traditional Micro financing/crediting• Activity based Micro crediting through   Conventional or Specialised Banks...
Contd….• The out reach of micro credit services grew t roughly  60,000 to 600,000 from 1995 to 2005• An estimated total ma...
WHY MF• Instrument to fight poverty• Poor people need a diversity of financial services, not  only loans• To build perpetu...
MF Sector wise             Agriculture 26%             Livestock 16%             Trade 31%             Services 8%        ...
Evolution Of Microfinance In          Pakistan
Evolution Of Microfinance In          Pakistan• The beginning of the modern microfinance  movement can be traced back to 1...
continued• AKRSP spawned the rural support movement that  accounts for approximately 70% of NGO outreach in  microfinance ...
continued•   In 1990s a variety of other NGOs began to offer    microfinance services.• In 1996 Kashf Foundation was estab...
continued• In the wake of government’s policies to alleviate  poverty during the Musharraf regime microfinance  was select...
continued• Microfinance institutions have since been diversifying  their product-offering by exploring new areas which  in...
At present following microfinanceinstitutions are operating inPakistan:Micro Finance Banks:• Kashf Microfinance Bank•   Kh...
continued• Pak-Oman Microfinance Bank Limited (POMFB)• Rozgar Microfinance Bank Limited• Tameer Microfinance Bank Limited•...
Micro Finance Institutions:• Akhuwat•   Asasah• Community Support Concern•   Development Action for Mobilization and    Em...
Continued:• Kashf Foundation•   Orangi Pilot Project• Sindh Agricultural and Forestry Workers Cooperative  Organization
Rural Support Programmes:• Lachi Poverty Reduction Project• National Rural Support Programme• Punjab Rural support Program...
Others:• Centre for women Cooperative Development• Jinnah Welfare Society• Narowal Rural Development Programme• Organizati...
continued• Rural Community Development Society• Save the Poor•   Sindh Rural Support Program•   Sungi Development Foundati...
Zarai Taraqiati Bank Limited (ZTBL)• The Government of Pakistan in early 1960s started  agricultural credit scheme through...
continued• Government policy with regard to  agricultural credit is to safeguard the  interest of small/medium farmers by ...
Current Facilities Availableto Farmers  • Running financing from the banks on the basis of    multiple/revolving limits fo...
continued• A farm loan help Desk is functioning in the Agriculture  Credit Department, State Bank of Pakistan, Karachi to ...
Microfinance in Pakistan’sAgriculture Sector: Where is the     money coming from?
Overview               • Widely recognized on a policy-level               • Pakistani context: financial and social servi...
• Rural households that take loans         32%*                   – Informal sources              90%                     ...
Informal Sources              •   Simple, flexible              •   96% on personal assurity*              •   More access...
• Belief that moneylenders charge obnoxious rates• Commision agents or arhtis• Effectively high rate of return from borrow...
Formal Sources• Constrained by complex procedures and  documentation• Transaction costs• Collateral:    – Security of land...
• Includes government departments and  corporations, co-operatives, commercial banks, and  agriculture-specific banks.• ZT...
Current Statistics
Distribution of different loans by                             purpose(%) - 1995Source: The impact of farm credit in Pakis...
Distribution of borrower households    by operational holding-1995Source: The impact of farm credit in Pakistan, World Bank
Micro finance Outreach
Proportion of Male and Female           Borrowers
Micro finance marketData Source: Microfinance Challenges and Opportunities in Pakistan bySulaiman D. Muhammad
Costs of lending for ADBP
Recovery rates for ADBP loans
Cost-effectiveness of ADBP lending based on         actual distribution of loans
Source: The impact of farm credit in Pakistan, World Bank       Note: Figures in parentheses are based on the assumption t...
Challenges andRecommendations
Inadequate Access of the Poor to            Services• Inadequate access to productive resources and social  services has r...
Obstacles for Microfinance         Outreach to Women• Constraints on mobility, social interaction, and skills  development...
Absence of mitigation measures• Poor households forego potentially viable  technologies, production choices and income  op...
Institutional Limitations• Competitive pressures for product differentiation and  cost reduction are increasing.• Smaller ...
Services• Delivery of financial services to the poor, particularly  in rural areas is constrained by• Density in some prov...
Improper Regulations    It is quite necessary to reform regulatory norms which      are quite complicated and have become ...
Increasing Competition• With the introduction of formal microfinance banks  and institutions, and increase in awareness, c...
MFIs Profitability• In MF sector due to the special circumstance on  demand side, MFIs cannot charge high rate of  interes...
Stability of MFIMicrofinance in particular context is a by-product of banking sector. Hence its stability depends upon the...
Political Interference• In the rural areas of Pakistan role of landlords is very  obvious i.e. exploit the poor people.• B...
Inadequate infrastructure        development• Insufficient investment in physical infrastructure  automatically increases ...
Low Level of Knowledge• Existing human resource has a very low knowledge  base which is quite insufficient to run this mec...
Recommendations• MFIs’ staff working in market needs adequate  training.• Research can be done on the level of skills of t...
Conclusion• Microfinance services for the poor are now widely  promoted as a key strategy for poverty reduction.• Many mic...
Connect With Us        ULTRASPECTRA                    OPEN AcademyFacebook.com/Ultraspectra       Facebook.com/openacadem...
Micro Cradit Schemes in Agriculture Sector
Micro Cradit Schemes in Agriculture Sector
Micro Cradit Schemes in Agriculture Sector
Micro Cradit Schemes in Agriculture Sector
Micro Cradit Schemes in Agriculture Sector
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Micro Cradit Schemes in Agriculture Sector

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  • Punjab provincial co operative bank ltd
  • Micro Cradit Schemes in Agriculture Sector

    1. 1. Micro Cradit Schemes in Agriculture Sector
    2. 2. CREDIT & MICROFINANACE IN AGRICULTURE SECTOR
    3. 3. 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
    4. 4. 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
    5. 5. Contd….• Traditional Micro financing/crediting• Activity based Micro crediting through Conventional or Specialised Banks• Rural credit through Specialised Banks
    6. 6. 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)
    7. 7. 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
    8. 8. MF Sector wise Agriculture 26% Livestock 16% Trade 31% Services 8% Manufacturing 7% Housing 0% Others 13%
    9. 9. Evolution Of Microfinance In Pakistan
    10. 10. 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.
    11. 11. 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).
    12. 12. 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.
    13. 13. 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.
    14. 14. 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 )
    15. 15. At present following microfinanceinstitutions are operating inPakistan:Micro Finance Banks:• Kashf Microfinance Bank• Khushhali Bank• Network Microfinance Bank Limited (NMBL)0
    16. 16. continued• Pak-Oman Microfinance Bank Limited (POMFB)• Rozgar Microfinance Bank Limited• Tameer Microfinance Bank Limited• The First Micro Finance Bank Limited (FMFB)
    17. 17. Micro Finance Institutions:• Akhuwat• Asasah• Community Support Concern• Development Action for Mobilization and Emancipation
    18. 18. Continued:• Kashf Foundation• Orangi Pilot Project• Sindh Agricultural and Forestry Workers Cooperative Organization
    19. 19. Rural Support Programmes:• Lachi Poverty Reduction Project• National Rural Support Programme• Punjab Rural support Programme• Sarhad Rural Support Programme• Thardeep Rural Development Programme
    20. 20. Others:• Centre for women Cooperative Development• Jinnah Welfare Society• Narowal Rural Development Programme• Organization for Participatory Development• Rural Community Development Society
    21. 21. 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)
    22. 22. 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.
    23. 23. 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.
    24. 24. Current Facilities Availableto 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.
    25. 25. continued• A farm loan help Desk is functioning in the Agriculture Credit Department, State Bank of Pakistan, Karachi to facilitate the farmers/borrowers.
    26. 26. Microfinance in Pakistan’sAgriculture Sector: Where is the money coming from?
    27. 27. 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: Microfinancein Pakistan”
    28. 28. • 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
    29. 29. 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 failsSource: World Bank Report, 1995
    30. 30. • Belief that moneylenders charge obnoxious rates• Commision agents or arhtis• Effectively high rate of return from borrower• Demand for agricultural credit: highly service elastic
    31. 31. 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
    32. 32. • 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”
    33. 33. Current Statistics
    34. 34. Distribution of different loans by purpose(%) - 1995Source: The impact of farm credit in Pakistan, World Bank
    35. 35. Distribution of borrower households by operational holding-1995Source: The impact of farm credit in Pakistan, World Bank
    36. 36. Micro finance Outreach
    37. 37. Proportion of Male and Female Borrowers
    38. 38. Micro finance marketData Source: Microfinance Challenges and Opportunities in Pakistan bySulaiman D. Muhammad
    39. 39. Costs of lending for ADBP
    40. 40. Recovery rates for ADBP loans
    41. 41. Cost-effectiveness of ADBP lending based on actual distribution of loans
    42. 42. 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).
    43. 43. Challenges andRecommendations
    44. 44. 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.
    45. 45. 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.
    46. 46. 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.
    47. 47. 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.
    48. 48. 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.
    49. 49. 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.
    50. 50. 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.
    51. 51. 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.
    52. 52. Stability of MFIMicrofinance 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.
    53. 53. 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.
    54. 54. Inadequate infrastructure development• Insufficient investment in physical infrastructure automatically increases the cost of doing business and ultimately discourages private investment.
    55. 55. Low Level of Knowledge• Existing human resource has a very low knowledge base which is quite insufficient to run this mechanism smoothly.
    56. 56. 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.
    57. 57. 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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