There is a growing consensus that large commercial banks prefer to work in certain comfort zones. Top of the list item is investment in totally risk-free government securities i.e. Treasury Bills and Pakistan Investment Bonds (PIBs). This is followed by lending to the blue of the blue-chip companies, which offer substantial deposits. Ironically, microfinance banks also suffer from this herd mentality.
Many analysts strongly believe that agriculture has the potential to boost Pakistan’s GDP manifold, but paltry lending to the agriculture sector that too at a high-interest rate and on top of all lack of specific lending guidelines, does not allow the country to exploit its real agri potential.
The biggest impediment is that nearly 20% of leading crops and 40% of fruits go stale before reaching the market due to inadequate and outdated storage facilities. If the government is able to create a supporting ecosystem and these post-production losses are reduced even by 50% there could be a colossal increase in availability, particularly for export and millions of dollars could be earned. This would also improve the economic conditions of the farmers.
Analysts are surprised at the apathy of the central banks as well as commercial banks, which have failed to create warehousing facilities. To establish their point they say, “The government had introduced the Electronic Warehouse Receipt (EWR) scheme as back as in 2013. Over the last decade, the lending against EWR has not gone beyond PKR2 billion in a year. We believe these numbers are contemptuous if one looks at the overall lending to the farmers, the government has fixed an indicative target of PKR2.25 trillion for the current fiscal year.”
According to Sindh Farmers Forum, “This year the province is likely to produce over 5 million tons of wheat. The most regrettable point is that neither the provincial government nor its ancillaries have adequate facilities to store this bumper crop. The biggest fear is that a large percentage of wheat will be wasted and farmers from the province will emerge as the biggest losers”.
One may recall that the government has allowed the private sector to import 700,000 tons of wheat and the last date for opening letters of credit is March 31, 2024. This would the national exchequer US$210 million. Many analysts fail to understand the logic behind importing wheat because last year Pakistan produced around 28 million tons of wheat, as against local consumption of 24 million tons.
According to an expert, wheat storage silos, each having a capacity of a minimum of 25,000 tons should be established in major wheat-producing districts of Sindh and Punjab. This year Pakistan is expected to produce 40 million tons of wheat.
Besides wheat, the country produces nearly 10 million tons of maize and 10 million tons of rice.
Microfinance banks should also hand with telcos, to facilitate farmers to make payments for fertilizers, seeds, and pesticides. At an average, the farmers buy more than 6 million tons of urea every year.
It may be of some interest to the Microfinance Banks that more than 30 oil marketing companies are operating in the country, which has hundreds of outlets throughout Pakistan. However, excluding the top five other companies have either paltry storage facilities or no storage facilities.
This business segment effectively offers two business opportunities to the financial institutions: 1) project financing for the construction of storage facilities petroleum products and 2) commodity financing. It is a trillion-dollar market that needs the immediate attention of financial institutions.
Having sufficient storage facilities not only helps in avoiding supply shocks but also minimizing overcharging. The added advantage is that new job opportunities will be created throughout Pakistan that could stop the migration of people seeking jobs to urban areas.