To support the agriculture sector and enhance access to credit for small and marginalised farmers, the government of Pakistan has launched a risk coverage scheme for banks and microfinance institutions (MFBs).Â
This initiative is designed to reduce the risk of lending, particularly in unserved and underserved regions, and to encourage financial institutions to offer loans to the agricultural sector.
The scheme will be available to all commercial banks, Islamic banks, specialised banks, and MFBs, and covers production loans for crops, dairy, livestock, and fisheries. These loans, which can go up to Rs3 million, will be disbursed between July 1, 2025, and June 30, 2028.
Loans will have a repayment term of up to 12 months, with sugarcane loans extending to 18 months. In cases where a loan or installment is overdue by 12 months, the loan will be classified as a loss. Under the scheme, the government will provide a 10% first-loss coverage on the outstanding agricultural loan portfolio for new and existing borrowers.
Financial institutions will file claims for risk coverage electronically within 15 working days after the completion of each quarter. However, these claims will not prevent banks from pursuing recovery actions for defaulted loans. In cases where banks receive recovery from delinquent borrowers, they may adjust the amount against pending risk coverage claims.
Additionally, the federal government will cover operational costs by paying Rs10,000 per new borrower to banks, based on the net increase in the number of borrowers from the previous year.
The State Bank of Pakistan (SBP) stated that the objective of this scheme is to increase financing for small and marginalised farmers, especially in rural areas with limited access to credit.
The program is also aimed at promoting financial inclusion by extending credit to subsistence landholding farmers in Punjab, Sindh, and all types of landholding farms in KPK, Balochistan, AJK, and GB.
The SBP has urged all banks and MFBs to ensure the effective implementation of the scheme to improve access to credit for small-scale farmers and contribute to the agricultural sector’s growth.
