The government on Tuesday approved Credit Guarantee Scheme focusing on small farmers who do not have any collateral to offer against loans.

Finance Minister Ishaq Dar at a meeting approved Credit Guarantee Scheme focusing on small farmers with landholding up to 5 acres in canal-fed and 10 acres in rain-fed areas are eligible to apply. Formal launching of Credit Guarantee Scheme will be carried out in a few days.

The government announced this scheme in the budget for the current financial year. A credit guarantee scheme for small and marginalised farmers is being introduced to encourage banks to finance small farmers who previously did not have access to banking facilities. Under the programme, the government, through the State Bank of Pakistan (SBP), will guarantee up to 50% loans made by financial institution to farmers who have up to five acres irrigated and 10 acres non-irrigated land holdings.

The minimum loan size is Rs100,000/- with a maximum tenor of 1 to 1.5 years. Government will share 50% of the loan default risk and it has already allocated Rs. 5 billion for the scheme. The State Bank of Pakistan will execute the scheme, which is the initiative of the Ministry of Finance. Chairman Agri Forum Pakistan Muhammad Ibrahim Mughal said that government should simplify and specify the system of Credit Guarantee Scheme. Talking to The Nation, he suggested that government that it would do better if revenue officials (Patwaris) were asked to issue passbooks to all landholders in their areas of jurisdiction instead of waiting for farmers to come to them. Then, the farmers should go to credit window operation along with their passbook for releasing their loans, he added.

Meanwhile, according to the official handout issued here, the meeting also reviewed the disbursement of agriculture credit in the FY 14-15. The minister was informed that against total allocation of Rs. 500 billion, Rs. 289 billion had been disbursed by the end of February 2015 which was 32% higher compared to the same period last year.

The minister expressed appreciation over the growth in the non-farm sector in line with its higher share in the GDP. He also expressed satisfaction over declining trend of non-performing loans in agriculture sector from 18% in 2012 to 11.4% by December 2014. The minister was also informed that commercial and micro-finance banks had gained momentum in terms of grant of agriculture credits, which manifested upsurge in the agriculture sector.