Pakistan seeking partnership with international warehousing and collateral management companies

State Bank of Pakistan (SBP) and all the financial institutions that extend loans to the agri sector deserve appreciation for meeting the indicative target of Rs600 billion set for FY16.

The amount disbursed FY16 is 16 percent higher as compared to FY15. The SBP deserves real appreciation because during this period farmers were not keen in boosting the output due to the lower commodity prices.

I am a staunch believer that if the Government of Pakistan (GoP) is serious in boosting GDP growth rate as well as achieving food security it has to remove the impediments affecting agri out. Analysts have the consensus that agri output can be doubled without bringing additional area under cultivation.

It is no secret that the biggest hurdle in achieving food security is colossal post-harvest losses ranging from 15 to 40 percent for different crops. Two factors responsible for these losses are: 1) absence of modern warehouses and 2) inefficient logistic system. Extension of loans to farmers may have helped in increasing production but certainly not helped in containing the post-harvest losses.

Nearly three years ago, the SBP had circulated the draft rules for Warehouse Receipt Financing. The second set of draft regulations has been issued by Securities & Exchange Commission of Pakistan (SECP) in June this year. While one may question the logic behind issue of regulations by both the apex regulators, the real point of concern is that the focus of both the regulators is not the two staple food grains i.e. wheat and rice.

It is highly deplorable that the total output of wheat, rice and maize touches 40 million tons annually but all sorts of warehouses put together can’t store even one-tenth of this quantity. Ironically, both the apex regulators are working hard on warehouse receipt financing, which can’t be achieved without construction of modern warehouses and creation of collateral management and certification companies.

Even more surprising is that SBP offers financing of up to 65 percent of civil works, but investors are not keen in availing this facility. It may be said that the entrepreneurs either fail to understand the whole concept or are scared to initiate such a venture, where dealing with feudal lords is considered highly risky.