Hasan

Pakistan’s expanding agricultural loan disbursements and digital risk coverage schemes are showing progress in rural finance, but experts say long-term sustainability will require structured mechanisms similar to those used in China’s rural revitalization financing framework.

In FY2024-25, Pakistani banks disbursed about Rs2.58 trillion in agricultural loans, exceeding the annual target and rising roughly 16% year-on-year. While this reflects strong momentum in formal rural credit, experts stress that predictable and institutionalised frameworks — as seen in China — are essential to ensure durable rural development support.

Speaking with Wealth Pakistan, Dr Tahir Munir Butt, Head of the Department of Rural Development, University of Agriculture, Faisalabad, said the State Bank of Pakistan (SBP) has been mobilizing formal rural credit through Agricultural Credit Expansion Plans, with lending from commercial banks, microfinance banks, and rural support programmes.

He said schemes such as the Risk Coverage Scheme for Small Farmers & Underserved Areas, the National Subsistence Farmers Support Initiative, and Electronic Warehouse Receipt Financing are widening access and encouraging movement away from informal moneylenders.

He noted that institutions like Akhuwat Foundation and the National Rural Support Programme and its microfinance bank are helping rural entrepreneurs access credit “where formal banks rarely reach.”

He also pointed to digital agriculture financing by Bank Alfalah, which “disbursed PKR100 million in subsidized digital loans for dairy and equipment,” but cautioned that “their impact remains uneven across regions and sectors.”

Linking Pakistan’s experience to China, Dr Butt said rural revitalization financing in China connects policy direction, financial institutions, and targeted support under predictable frameworks backed by risk sharing and regulatory incentives.

He said China is establishing permanent financial support frameworks for rural revitalization that go beyond short-term loans or ad hoc subsidies. These include mechanisms where rural and agricultural lending is not penalized for slightly higher risk profiles, incentivizing banks to serve rural clients.

He suggested Pakistan could create modelled rural finance mandates backed by risk sharing and regulatory incentives, reducing uncertainty for lenders and ensuring sustained credit flows.

Talking to Wealth Pakistan, Dr Ijaz Ashraf, Professor at the Education and Rural Development, University of Agriculture, Faisalabad, said rural development finance in Pakistan is heavily driven by the SBP through specialized agricultural lending, microfinance and credit guarantee schemes for smallholders, supported by institutions including Zarai Taraqiati Bank Ltd and commercial banks.

While these programmes can raise productivity by enabling input purchases, he pointed to crowding out of private sector credit, limited reach and inclusion, and macroeconomic instability as continuing constraints.

Referring to China’s approach, he said Pakistan may not copy the model completely but selectively replicate mechanisms that ensure sustained and predictable financing according to Pakistan’s requirements.

He prioritised legally mandated rural development funding, a national agricultural credit guarantee system, a dedicated policy bank for rural investment, rural infrastructure bonds, and a large-scale crop insurance programme.

Dr Muhammad Ammad Khan, Assistant Professor of Development Studies, National University of Sciences and Technology (NUST), told Wealth Pakistan that the Risk Coverage Scheme for Small Farmers and Underserved Areas, introduced in mid-2025, provided first-loss coverage of approximately 10% and enabled collateral-free financing of up to Rs3 million through a centralized digital portal. He said the National Subsistence Farmers Support Initiative supports online applications and in-kind disbursement of inputs, alongside agronomic advisory services.

He pointed to the “No. 1 central document” released by China earlier this month and recommended special purpose bonds for agriculture, broader acceptable collateral beyond land, layered risk sharing, and “whole village credit profiling” through digital platforms.

The Chinese "No. 1 central document" outlines plans to advance agricultural and rural modernization and to promote all-around rural revitalization. The document calls for efforts to shore up weak links in agriculture and rural areas, and secure faster progress in building up China's strength in agriculture over the 15th Five-Year Plan period (2026-2030).

With digital credit platforms expanding in Pakistan and rural development finance programmes already in play, experts say strengthening reliability, institutional continuity and risk-sharing mechanisms — drawing selectively from China’s rural revitalization framework — could help ensure that rural credit access widens and productivity improves together.

Credit: INP-WealthPk