Govt Introduces Risk Coverage Scheme to Boost Financing for Small Farmers

The Federal Government will pay Rs. 10,000 per new borrower to banks, based on the net increase in the number of borrowers over the previous year. Banks will evaluate their net increase in borrowers at the end of each fiscal year and submit their claims electronically to the Financial Inclusion Support Department (FISD), SBP BSC, within 15 working days, according to a notification issued by the State Bank of Pakistan (SBP). This incentive is part of a risk coverage scheme for banks and microfinance banks (MFBs) aimed at enhancing financing to small and marginalized farmers, as well as farmers in unserved and underserved areas. Under the scheme, the government will provide 10% first-loss coverage on the outstanding agricultural loan portfolio for new borrowers and the incremental outstanding portfolio for existing borrowers (principal amount only). Borrowers can avail up to Rs. 3.0 million for a maximum of 12 months, except for sugarcane loans, which have a tenure of 18 months. The payment of risk coverage claims will not absolve banks of their right to recover defaulted amounts. Banks will continue their regular recovery procedures for loans. Recoveries from delinquent borrowers may be treated in three ways: If a bank receives recovery from delinquent borrowers and has pending subsidy claims with the SBP under the scheme, the bank may adjust the recovered amount by netting it off from the risk coverage claims in its quarterly submissions. All commercial banks, Islamic banks, specialized banks, and microfinance banks are eligible to participate in this scheme, which will remain valid until June 2028.