Pakistan: SBP and IFC join hands to promote Agriculture Finance through Warehouse Receipts Financing

Deputy Governor State Bank of Pakistan (SBP) Ms. Sima Kamil while addressing a two-day specialized training workshop on Electronic Warehouse Receipt Financing (EWRF) for banks observed that the training program will be instrumental to support SBP’s recent initiative to promote EWRF in the country.

Banks will be able to get hands on knowledge about EWRF product development, understanding the risk analysis, price determination mechanism and the international best practices.

She encouraged senior bankers to use the relevant knowledge of EWRF gained during the session and disseminate it in the industry for its smooth implementation.

EWRF is a mechanism whereby farmers can avail financing facility from banks by placing their produce and agricultural commodities. By doing so, farmers can avoid selling their produce on unfavorable prices just to ensure cash flows to meet input requirements of next crop. It will also help in reducing Pakistan’s high post-harvest losses.

Adoption of EWRF by banks and its enhanced uptake will not only facilitate banks to achieve higher levels of agriculture credit disbursement but will also help them enhance credit outreach.

Ms. Kamil noted that agriculture contributes almost a quarter to our GDP and employs half of the labor force. However, she regretted that people associated with agriculture sector face challenges in access to finance and modernize infrastructure that may facilitate them either in storing or timely disposal of their agricultural produce.

She added that SBP took the initiative of EWRF in view of the role of warehousing regime in increasing food security, reducing post-harvest losses and allowing bank financing to farmers against commodities as collateral. She hoped that it will facilitate traders and processors to purchase inputs they need, including seeds, fuel and fertilizers, before and during the harvest, when their seasonal financing needs are significant.

Parallel it will encourage investment in agricultural infrastructure in terms of building new, modern and commercially viable warehousing infrastructure. At outset, 25 banks signed System Usage Agreements (SUAs) with Naymat Collateral Management Company and SBP assigned indicative financing targets to these banks for FY 2021-22 and 2022-23. Now, these banks have started financing against maize crop in various districts of Punjab under the EWRF regime.

The Deputy Governor acknowledged the support extended by IFC in terms of technical assistance to Government of Pakistan and other key stakeholders to make building blocks for EWRF in Pakistan.

She expressed gratitude for IFC team led by its Country Manager for Afghanistan and Pakistan, Zeeshan Ahmed Sheikh and Ms. Nouma who has been coordinating an IFC-collaborated project for the promotion of EWRF in Pakistan. She also encouraged senior bankers to use the relevant knowledge of EWRF and disseminate in the industry for its smooth implementation.

Speaking on the occasion Zeeshan observed that innovative financing models, such as electronic warehouse receipts, are extremely important as they can unlock a massive amount of capital, bolstering the farming sector and, over the long run, supporting job creation and economic growth. He also acknowledged the Government of Japan for supporting the EWR work.

SBP organized the two-day training workshop in line with the EWRF Uptake Action Plan in collaboration with IFC. During the workshop, global experts from IFC and Pakistan shared their knowledge and experiences with senior banking officials regarding different modalities of collateralized commodity financing and EWRF. The program provided a deeper understanding of EWRF to banks that will help them to extend financing to farmers against agricultural commodities as alternate collateral.

This article was originally published in Eurasia Review

Pakistan: New Vistas in Agriculture

Pakistan is among the top producers of cotton, rice, sugarcane, wheat, mango, kinnow (tangerine) and some other crops. The country is also among the top ten largest producers of milk. However, nearly 10 percent of food grains and up to 40 percent of fruits produced goes stale before reaching the market. Only 5 percent of total milk produced in the country is packed in tetra packs. This on one hand deprives growers of their rightful return and on the other hand does not allow the country to earn foreign exchange, needed most desperately for the economic growth.

 

In an attempt to help the farmers boost production and yield, the State Bank of Pakistan (central bank) embarked upon ambitious agri lending program. Now the annual disbursement to farmers is inching close to Rs400 billion or US$4 billion. The endeavor is fully supported by insurance companies operating in the country. This initiative has helped Pakistan in joining ‘club of wheat exporting countries’. At the close of current sugarcane crushing season, refined sugar output is likely to touch 4.7 million tons with exportable surplus of 0.5 million tons. The country is also likely to get nearly 13.5 million bales of cotton. Pakistan is already exporting huge quantity of rice, especially ‘Basmati’, with unique aroma. However it continues to import edible oil worth US$2 billion annually.

To further reinforce support to farmers the central bank offers loans for construction of modern warehouses on concessional interest rate. The need for warehousing facilities can be gauged from the fact that Pakistan produces nearly 40 million tons of different cereals, out of this wheat alone accounts for 25 million tons. As against this, the country has warehousing capacity of around 5 million tons. Storage of grains in ‘technical not fit warehouses’ is the single biggest reason of nearly 10 per cent going stale and not being suitable for human consumption.

In yet another initiative the central bank has formed a working group for developing ‘Warehouse Receipt Financing’. The working group will have representatives from leading commercial banks, Islamic banks, International Finance Corporation (IFC). The central bank aims at working closely with Pakistan Mercantile Exchange (PMEX), financial institutions, farmers and other stakeholders to structure and rollout system of warehouse receipt financing in the country on fast track basis. 

Deputy Governor of the SBP, Saeed Ahmad recently chaired a meeting on formulation of the Group. Talking to the representatives of different stakeholders, he said “Adoption of warehouse receipt financing system would facilitate development of efficient and accessible rural financial system. Development of physical trade and marketing system of commodities would improve performance of the agricultural sector. Financial institutions would find it profitable to lend money for the construction of new warehouses”.

This initiative offers tremendous opportunities to companies involved in this trade around the globe. These entities can form joint ventures with Pakistani entrepreneurs by involving IFC; mobilize funds globally or by listing the companies at the Karachi Stock Exchange. Central bank already has a plan for extending soft-term loans for the construction of warehouses. Those interested in construction of warehouses can also approach National Bank of Pakistan enjoying the largest share in lending to farmers for inputs and developmental work.

For details contact Shabbir Kazmi at shkazmipk@gmail.com or call 92-300-8980112