Download 38 - VU LMS

Recap
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Agriculture Sector in Pakistan
Agri-based Loans and Criteria
Role of SBP in Agriculture Sector
Role of Banks in Agriculture Sector
Collateral and Security of
Agriculture Loans
What types of
securities/collaterals are
acceptable to the banks for
providing agricultural credit
to farmers/growers?
• Agricultural land under the pass book
system,
urban/rural
property,
commercial property, Defense Saving
Certificates,
Special
Saving
Certificates,
Gold
&
Silver
Ornaments,
personal
surety,
hypothecation of livestock and other
assets e.g. motor boats / fishing
trawlers, etc. are generally accepted
by banks as collateral.
Is mark-up rate fixed by SBP
on agricultural loans?
• SBP
does
not
fix
any
maximum/minimum mark-up rate to
be charged on agricultural loans.
Banks’ mark-up is based on their cost
structure and risk profile of the
borrowers and the sector. However,
for benchmarking, Karachi inter-bank
Offered Rate (KIBOR) is used by
banks for the purpose.
• Revolving
Credit
Scheme
was
introduced in 2003 in consultation with
banks. Under the scheme, banks can
provide finance for agricultural purposes
on the basis of revolving limits for a
period of three years with one-time
documentation. The borrowers are
required to clear the entire loan amount
(including mark-up) once in a year at
the date of their own choice.
• Multiple withdrawals are allowed and
the borrowers are also allowed to make
partial repayments. Only the amount
utilized by the borrower will attract
mark-up. This facility can be availed by
the farmers just like “running finance”.
The limits under this scheme are
automatically renewed on annual basis
without any request or fresh application.
Is the credit facility under
“Revolving Credit Scheme”
available only on seasonal
basis i.e. one crop only?
• The credit limits under Revolving Credit
Scheme are available to the farmers for
full one year i.e. covering both the crops
in a year. To save the farmers from
stress sale of their crops, they are
required to clear their account only once
in a year at a date indicated by the
borrower and mutually agreed with
lending bank.
Is there any
system/procedure under
which farmers can get
agricultural loans at their
doorsteps?
• Mobile Credit Officers (MCOs) and
Agricultural Credit Officers of banks
are visiting the farmers regularly to
ascertain the credit needs of the
farmers and ensure its availability at
their doorsteps and also provide
technical help for different crops.
Whether landless
farmers/tenants can avail
agricultural credit under
Revolving Credit Scheme?
• Yes, agricultural credit under
Revolving Credit Scheme can be
availed against personal surety,
guarantee or any other collateral
acceptable to banks.
Are farmers who had availed
any concession or remission
under Government relief
package announced from time
to time, eligible for fresh
loans?
• Yes, borrowers who have availed
concession under any scheme notified
by the government or concerned
bank/DFI in the light of guidelines
issued by SBP may be eligible for fresh
financing.
What Are SMEs
• As defined by State Bank of Pakistan SME (Small and Medium Enterprise)
means an entity, ideally not a public
limited company, which does not
employee more than 250 persons (if it
is manufacturing concern) and 50
persons (if it is trading / service
concern) and also fulfills the following
criteria of either ‘a’ and ‘c’ or ‘b’ and ‘c’
as relevant:
• (a) A trading / service concern with
total assets at cost excluding land
and buildings up to Rs 50 million.
(b) A manufacturing concern with total
assets at cost excluding land and
building up to Rs 100 million.
(c) Any concern (trading, service or
manufacturing) with net sales not
exceeding Rs 300 million as per latest
financial statements.
SME Financing and HandHolding in Pakistan
• Research reveals that despite the lack of
collateral, SMEs are a better credit risk, as
the default rate of this sector is much below
that of large enterprises (LEs). Throughout
the world, SMEs have provided tremendous
opportunities to financial institutions to
design various tools for the sector's
development (e.g. Program Lending
Schemes, Credit Scoring, Venture Capital
Financing, etc.).
• Then there are clusters, technology
parks and industrial estates, all being
fuelled by the dynamism and vibrancy
of small and medium enterprises.
Banking institutions, running on
Islamic
principles,
are
also
experimenting with interest free
financial
instruments
(e.g.
Mudarabah, Murabaha, Ijarah etc.) for
this sector.
• Small and medium enterprises or
SMEs, also called small and
medium-sized
enterprises
and
small
and
medium-sized
businesses or small and medium
businesses or SMBs are companies
whose headcount or turnover falls
below certain limits.
• The
abbreviation
SME
occurs
commonly in the European Union and
in international organizations, such as
the World Bank , the United Nations
and the WTO . The term small and
medium-sized businesses or SMBs
has become more standard in a few
other countries
• Eeuropen Union Member States
traditionally had their own definition of
what constitutes an SME, for example
the traditional definition in Germany
had a limit of 500 employees , while,
for example, in Belgium it could have
been 100. But now the EU has
started to standardize the concept
• Its current definition categorizes
companies with fewer than 50
employees as "small", and those with
fewer than 250 as "medium". By
contrast, in the United States , when
small business is defined by the
number of employees, it often refers to
those with less than 100 employees,
while medium-sized business often
refers to those with less than 500
employees
• However, the most widely used
American definition of micro-business
by the number of employees is the
same of that of European Union less
than 10 employees.
• In most economies, smaller enterprises
are much greater in number. In the EU,
SMEs comprise approximately 99% of
all firms and employ between them
about 65 million people. In many
sectors, SMEs are also responsible for
driving innovation and competition.
• Providing SME finance and support is
thus an important area of economic
policy.
Significance of SMEs
• SMEs are considered the engine of
economic growth in both developed
and developing countries, as they:
Provide low cost employment since
the unit cost of persons employed is
lower for SMEs than for large-size
units.
• Assist in regional and local development
since
SMEs
accelerate
rural
industrialization by linking it with the more
organized urban sector.
• Help achieve fair and equitable
distribution of wealth by regional
dispersion of economic activities.
• Contribute
significantly
to
export
revenues because of the low-cost labour
intensive nature of its products.
• Have a positive effect on the trade
balance since SMEs generally use
indigenous raw materials.
• Assist in fostering a self-help and
entrepreneurial culture by bringing
together skills and capital through
various
lending
and
skill
enhancement schemes.
• Impart the resilience to withstand
economic upheavals and maintain a
reasonable growth rate since being
indigenous is the key to sustainability
and self-sufficiency.
Problems Faced by
Pakistan’s SME Sector
• Pakistan 's economy has amazing
potential for development but sadly, we
haven't been able to derive optimal
benefits despite a series of efforts
launched by various policy makers at
different times. The impetus of all
these endeavors was on the large
scale industries and manufacturing
concerns.
• High rate of failures, owing to
economic
slumps,
institutional
malpractices, political motives and
damaging activities of labour unions
in that sector, left the formal lending
institutions
with
huge
infected
portfolios,
• in addition to adverse effects on the
entire economy e.g. insufficient and
low quality production to meet the
demands of local and international
markets, deficit in balance of
payments
and
ever
rising
unemployment, etc.
• Pakistan 's SMEs are still unable to
achieve their maximum potential and
are in dire need of ‘hand-holding' and
business support services.
• A major challenge to economic policy
in Pakistan at this time is to energise
the private SME sector of the
economy. This follows in part from the
fact that other sectors are unlikely,
under present circumstances, to
provide the needed growth either of
output or of reasonably remunerative
employment;
• in fact, there will be a major
employment challenge over the
coming years as labour supply
continues to expand rapidly and as
neither the large-scale private sector
nor the public sector are poised to
create significant numbers of jobs,
• and though agriculture and the nonagricultural micro enterprise sector
can and probably will do so the levels
of productivity and hence of
remuneration are likely to be
unattractively low.
• By contrast, the SME sector does have
substantial untapped potential to
contribute to those objectives; both
economic logic and the experiences of
other developing countries point to that
potential, as well as providing evidence
on how it may be achieved. A dynamic
SME
sector
is
an
important
complement to a more open economy;
• in most of the countries which appear
to have reaped major benefits from
export orientation the SME sector has
been importantly involved in that
process. Achieving the maximum
contribution from SME, however, will
require significant improvements in
the support system.
• If achieved it will not only constitute
an important source of dynamism in
and of itself, but will also complement
efficient large enterprise, strengthen
the demand for agricultural products,
and make it easier for micro
enterprise to graduate into the SME
size range.
• Promotion of Small and Medium
Enterprises
(SMEs)
entails
enhancement of the competitiveness
of the economy and generation of
additional employment. A thriving
Small and Medium Enterprise (SME)
sector has long been recognized as
one of the key characteristics of any
prosperous and growing economy.
• Pakistan is an economy comprising
mainly of SMEs. The significance of their
role is clearly indicated by various
statistics. According to more recent
estimates there are approximately 3.2
million business enterprises in Pakistan.
Enterprises employing up to 99 persons
constitute over 95% of all private
enterprises in the industrial sector and
employ nearly 78% of the non-agriculture
labour force.
• They contribute over 30% to the GDP,
Rs.140 billion to exports, and account
25% of exports of manufactured
goods besides sharing 35% in
manufacturing value added.
• However, there has been concern that in
Pakistan the SME sector has not been
able to realize its full potential. The SMEs
continue to suffer from a number of
weaknesses, which hamper their ability to
take full advantage of the opening of
economy and the increasingly accessible
world markets. The areas of constraints
are normally identified as labour, taxation,
trade capacity, finance and credit
availability.
• It is understood that despite previous efforts
the SME sector has not received due priority
on account of segregated efforts and nonconsolidation of programs to achieve well
targeted results. In order to move forward,
we need to develop a common vision for
SMEs to be the real engine of growth. Our
vision also needs to be achievable so we
may find motivation in implementing phase.
• Implementing
change
requires
the
formulation of a Policy for SME
development and assigning specific
responsibilities for its implementation and
continuous improvement. The Government
of Pakistan has thus constituted the SME
Task Force, by Notification No.1(68)/2003Inv-III of 29 January 2004 of the Ministry of
Industries and Production, which is to
define the basic elements of our SME
policy.
• As there are many cross-cutting issues to
be addressed, the SME Task Force is
composed of diverse sectors and levels of
Government
and
includes
major
stakeholders of the private sector, and
SME in particular. Where the SME Task
Force deems it necessary or useful, it
may invite specific organizations or
individuals to assist its work. It may also
co-opt further members.
Recap
• Agriculture and economy of Pakistan
• Agriculture credit facility for poor farmers
and villagers.
• What is SMEs
• SME sector in the world
• SME sector in Pakistan
• International Financial Institutions and
SME sector in Pakistan