To achieve higher crop yields and boost overall productivity in Pakistan’s agriculture sector, which currently lags behind comparable countries, it is essential for farmers to apply agricultural inputs such as seed, fertiliser, and pesticide in recommended quantities, at the right times, and with assured product quality.

With over 90 per cent of Pakistan’s farmers holding less than 12 acres, their financial constraints often lead them to use inadequate quantities and lower-quality inputs. For this reason, all circles concerned have been strongly advocating for developing an easy and affordable agricultural credit system in the country — one that is free from exploitation and procedural barriers.

The recently launched Punjab Government “Chief Minister’s Kissan Card” scheme, with a budget of Rs9 billion for FY25, has been well-received by the farming community, with a large number of farmers enthusiastically opting into this initiative. The card enables smallholders to purchase agricultural inputs hassle-free from approved outlets, worth Rs30,000 per acre, with a maximum limit of Rs150,000, payable after six months.

The Bank of Punjab will provide these short-term, interest-free agricultural loans to the tune of around Rs50bn (in a crop season), while the Punjab Government covers the markup component.

Sustainability is a major concern as Kissan card’s funding is currently limited to FY25 with no provisions for the future

Previously, individual farmers had a few options for a production loan (running a finance facility). In the formal sector, the primary option was Zari Tariqati Bank Ltd; however, farmers frequently report that its loan processing procedures are cumbersome, time-consuming, and corruption-ridden. The second option was commercial banks, which charge high interest rates.

Even then, smallholders have relatively low access to agricultural credit, primarily due to their inability to provide the required collateral and the relatively small loan sizes, which increase administrative costs as a percentage of the loan amount for banks, making these farmers unattractive clients.

Alternatively, microfinance institutions offer relatively simple and farmer-friendly procedures; however, their average loan sizes are insignificant, and they charge prohibitively high interest rates. Several research studies indicate that the interest-based credit system is one of the major causes of creating a poverty trap. Such loans entail high risks for farmers, given the climate-related uncertainties that make crop yields increasingly unpredictable.

Consequently, a large number of farmers turn to informal (non-institutional) credit sources, primarily relying on arthees or input dealers for cash or in-kind credit. While these informal sources are quick and responsive, they often exploit farmers heavily. Another hitherto unexplored option for farmers that the government should actively promote is contract farming as a means of financial assistance. However, in Pakistan, its scale and scope remain very limited.

In the given agricultural credit market, the Kissan Card offers smallholders a valuable new option for securing quick, hassle-free, and interest-free agricultural credit. However, sustainability remains a major concern, as funding for this initiative is currently limited to 2024-25 only under the Annual Development Programme, with no provisions or projections for future years.

Thus, farmers are concerned that, like the widely praised health card initiative introduced by the previous government, this scheme may be curtailed or discontinued if a new political party comes to power in Punjab. That is why, business circles and development professionals believe that, regardless of personal or political biases and party manifestos, political parties should agree on some basic policy agenda, which is highly essential for the country’s economic and social development.

Another significant challenge for policymakers is the limited outreach of this scheme, currently capped at 500,000 farmers on a first-come, first-served basis. The scheme is intended for farmers with landholdings from 1 to 12 acres, a group that comprises over four million farmers in Punjab (Agricultural Census 2010). With the current target, only 12.5pc of farmers will benefit.

Therefore, the government must devise a concrete plan to extend support to the remaining farmers to ensure equitable access across the farming community and to create a substantial impact within the budgetary constraints.

One possible option to increase outreach is to lower the landholding limit from 12 acres to 5 acres prioritising subsistence farmers. Another sustainable approach for the government to partially fund this scheme is to negotiate volume discounts (5 to 10pc) with manufacturers of agricultural inputs — particularly seeds, pesticides, and micronutrients — whose products are authorised for sale under the Kissan Card through approved dealers.

Enhancing farmers’ purchasing power through this credit instrument will boost the sale of fertilisers, certified seeds, and pesticides in the country, ultimately supporting the growth of the upstream agro-industry. However, the government must ensure that only quality products are supplied through the Kissan Card.

This is particularly crucial in the pesticides sector, where farmers are at high risk of receiving substandard, counterfeit, expired, or unsuitable products due to the high margins associated with pesticide sales. One notable shortcoming of the Kissan Card scheme is its exclusion of millions of landless farmers who cultivate rented lands or work under crop-sharing arrangements. Although verifying their creditworthiness is complex and involves many challenges, they should not be excluded from its benefits.

In conclusion, farm sizes are shrinking in Pakistan due to land division among successive generations, which negatively impacts the financial strength of farmers. If we aim to foster a more productive and resilient agriculture sector, strengthening the agricultural credit system in the country should not be treated as a temporary, onetime populist intervention; rather, it must become a cornerstone of both federal and provincial agricultural policies.

Khalid Wattoo is a farmer and a development professional, and Dr Waqar Ahmad is a former Associate Professor at the University of Agriculture, Faisalabad

Published in Dawn, The Business and Finance Weekly, November 4th, 2024