Govt launches risk coverage scheme for small farmers & underserved areas
According to the State Bank of Pakistan (SBP), the initiative is aimed at encouraging financial institutions to extend fresh financing to farmers by offering government-backed coverage against potential loan losses.
Under the scheme, which will remain effective from July 1, 2025, to June 30, 2028, banks will be able to provide production loans for crops, as well as loans for dairy, livestock, and fisheries, with the government sharing part of the risk.
The scheme will cover all commercial banks/Islamic banks/specialised banks/MFBs.
Small and subsistence holding farmers from Sindh and Punjab, and all types of landholding farmers from KPK, Balochistan, AJK & Gilgit and Baltistan can benefit from the scheme.
Under the scheme, financing of up to Rs3 million will be provided, with a tenor of up to 12 months except for sugarcane, where it is 18 months.
'The loan will be considered as a loss in case the repayment of loan/installment is overdue by 12 months,' said SBP.
Under the scheme, the government would provide 10% first loss coverage on the outstanding agri loan portfolio, applicable to new borrowers and incremental financing to existing ones.
Importantly, payment of a risk coverage claim shall not obviate banks from the right of recovery of the defaulted amount. 'Banks shall continue with their regular procedure for recovery of loans,' said SBP.
To incentivise banks to attract new borrowers, the Federal Government will pay Rs10,000 per new borrower to the bank, to meet the operational cost, to the extent of the net increase in the number of borrowers over the previous year.
'Banks shall evaluate their net increase in number of borrowers at the end of each fiscal year and lodge the claims electronically with Financial Inclusion Support Department (FISD), SBP BSC within 15 working days,' said SBP.
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