Promoting savings among farmers is much needed but equally difficult. Most of the small farmers particularly need to increase savings as their access to bank credit remains limited. But promoting savings among them is not easy. The non-availability of tailor-made saving products, low financial literacy and their age-old habits of over-spending on socio-religious occasions make it difficult.
The government has a role to play here. It can roll out saving schemes and saving certificates designed exclusively for farmers. This will not just help the farming community but will also help the government increase its non-bank borrowing and reduce reliance on borrowing from banks.
In the outgoing fiscal year, which ended in June, microfinance banks or MFBs met 73 per cent of the credit disbursement target assigned to them. While disclosing this fact in a recent press release, the State Bank of Pakistan further informed that microfinance institutions (MFIs) and rural support programmes (RSPs) met only 57 of their cumulative credit target.
Most of our small farmers rely on these banks, institutions and programmes. Lower-than targeted credit distribution by them indicate the financial deprivation of our small farmers. Small wonder then that the total number of agricultural borrowers fell to 3.5 million in the last fiscal year from 3.7m a year ago. (Conventional and Islamic commercial banks performed better in 2020-21 — they met 95pc of their collective credit target. But these banks generally avoid lending to small farmers and remain focused on large and medium-sized agricultural borrowers).
Investment in agri-bonds can be allowed to overseas Pakistanis as well with some conditions aimed at protecting the interest of small farmers
Availability of suitable saving products for farmers, particularly small farmers can be helpful in such situations when agricultural credit disbursement by banks and other relevant institutions fall short of expectations. Over the years, small farmers will become financially more literate and will be able to self-finance their farming activities and minimise reliance on bank borrowings. A joint study carried out by scholars of three universities of Poland found that in 2017, “more than 97pc of small individual farms in Poland were able to self-finance and generate savings from their core business.”
A beginning made now can enable Pakistan’s small individual farms to become self-financed and able to generate savings in due course of time.
According to the latest statistics published by the Ministry of National Food Security and Research, about 7.4m farms (7,398,100 to be exact) can be categorised as small farms. This figure includes all small farms — of less than 0.5 hectares to 5 hectares or a little over 1 acre to a little less than 12.5 acres. This is a huge number. All these 7.4m farms are not owned by small farmers because many of them are actually owned by big landlords and leased out to small farmers. Regardless of this, whatever the actual number of the owners of these 7.4m farms that number should be in millions. Rolling out exclusive saving schemes and saving certificates for such farmers can empower them financially and can also create a gender balance as a large number of these small farms are owned fully or partly by women — and a larger number is managed by women.
Pakistan’s experience in fostering financial inclusion among farmers via cheaper and easier bank credit has gained limited success. Isn’t it time to think about achieving this goal by launching exclusive saving products for small farmers?
Finance Minister Shaukat Tarin is primarily a banker well aware of the bonds market. Designing one-year to five-year government farming bonds with built-in features to attract small farmers is no big deal for him. The SBP Governor Dr Reza Baqir has been working hard to promote financial inclusion. He can easily persuade banks to come up with exclusive saving schemes for the farming community, in general, and for small farmers, in particular.
National Bank for Agriculture and Rural Development of India had first developed agri-bonds in 2016 and has relaunched the same — more aggressively — in July this year. Indian financial think tanks are also working on what they call Agriculture Resilience Bonds. And, an exclusive saving certificate for farmers gained so much success in India in recent years that the Indian government has now allowed general investors to buy them.
All this can happen in Pakistan as well. But the federal and provincial governments must learn to work in harmony before embarking upon a long journey of empowering small farmers with emphasis on female farmers.
The 18th constitutional amendment that gives provinces control over agriculture still remains controversial. Either the amendment should be remodelled or it should be left untouched. A persisting confusion about its future only makes matter worse when it comes to long-term planning for agriculture. Secondly, while designing agri-bonds the Central Directorate of National Savings should work closely with all stakeholders for the early development of a resilient market for them.
Except for five-year Regular Income Certificates, all saving products of National Saving Schemes (NSS) showed a net outflow of investment in eleven months of 2020-21. These schemes are losing their charm due to low rates of returns and due to the ongoing documentation drive. That is why, between July 2020 and May 2021, overall investment in NSS showed a net outflow of Rs193bn against a net inflow of Rs371bn in 2019-20.
Redesigning of NSS has become necessary. Policymakers can use this opportunity for launching the much-needed agri-bonds.
The success of Roshan Digital Accounts for overseas Pakistanis has established that innovative ideas work wonders. Investment in agri-bonds can be allowed to overseas Pakistanis as well with some conditions aimed at protecting the interest of small farmers. For example, the Pakistani diaspora may be allowed to invest only in long-term agri-bonds the proceeds of which can be used for long-term agricultural development. And, all short-term agricultural saving schemes and saving certificates can be made exclusive for farmers, especially small farmers.
Published in Dawn, The Business and Finance Weekly, August 16th, 2021