LAHORE: Muhammad Arif, a smallholder in his fifties from Illoana, a village roughly 10km from Kasur, had never thought of obtaining a bank loan ever, let alone a rolling credit line, for the purchase of inputs for his crops – seeds, fertilisers and pesticides – until a couple of months back.

So when he received Rs5,6000 interest-free loan to procure inputs for sowing wheat and vegetables on his slightly less than two acres of land under the Punjab government’s Kissan Card initiative in November, and that too without pledging any collateral with the bank or having to approach anyone, he was completely staggered.

“Small farmers like me are highly dependent on the arhtis or middlemen for credit in the shape of inputs at a very heavy cost. That’s not all; we’re also obliged to sell our produce to them at a much lower price than the market. It’s a double whammy for us as we not only pay creditors higher than the market price for inputs but also have to sell them our crops at cheaper than prevalent rates,” he says. He is hopeful of saving 20,000 to 25,000 rupees that he would have paid the arhtis had he not received the Kissan Card loan to buy fertilisers.

Chaudhry Javed of Bhedian Samaana, a village located near the Ganda Singh border with India, has a similar experience to share.

Landholders whose record is not digitised unable to benefit from the scheme

“Initially, a feeling of disbelief overtook us when we heard about the scheme. It was too good to be true. But when I registered myself online for the loan, I was pleasantly surprised to find that a loan of Rs120,000 had been approved. I didn’t have to go anywhere for this; everything was done digitally and I had to leave my home only once to collect the card from one of the card distribution centres,” he recounts his experience. According to Javed, the arhtis charge roughly Rs40,000 to 50,000 as interest on a loan of Rs100,000 for one crop cycle.

“You can imagine the kind of savings we are looking forward to, thanks to these loans.”

Nevertheless, at village Sanda Chistana, located at a short distance from Bhedian Samaana, the small landholders are unable to benefit from the scheme because their land is yet not digitised by the Punjab Land Records Authority (PLRA).

“The scheme is for the farmers with clean land ownership titles as per the PLRA record. As soon as the PLRA digitises land record of the villages like Sanda Chistana, landowners from there will also become eligible for the Kissan Card loans,” explains Ghulam Mustafa, an assistant director at the agriculture department in Chunian.

According to him, the land record of at least a third of nearly 750 villages of the Kasur district is yet to be computerised. Three quarters of farmers with digitised landholding record across the Kasur district had applied for the loans while 75pc of them received the card. Those whose applications were rejected didn’t meet the eligibility criteria: either their mobile phone number wasn’t linked to their CNIC or their CNIC had expired or their credit score was too low to qualify for a loan or some other reason(s).

“You’d see the demand for these loans increase in the next crop cycle as those left out of the scheme this time owing to one reason or the other are completing documentation required by the bank,” Mustafa concluded.

All farmers, who have a mobile SIM registered against their own CNIC and whose land record is available with the PLRA are entitled for these loans for six months. The facility caters to the needs of landholders owning 1-12.5 acres of agriculture land to procure seeds, fertilisers and pesticides at controlled prices in-built in the card from the designated primary dealers of the manufacturing companies. The maximum loan farmer can receive is capped at Rs30,000 per acre per season with a ceiling of Rs150,000 for a maximum of five acres. Once the loan is repaid at the end of the cycle, it will immediately be renewed for the next cycle. The initiative will cost the Punjab government Rs9.5bn in interest rate subsidies.

The Bank of Punjab, the only bank participating in the scheme, has approved loans of more than Rs50bn under the Kissan Card programme, benefiting almost 500,000 farmers. The average ticket size is estimated to be Rs100,000 to 102,000.

BoP President Zafar Masud says it is a scale unmatched in Pakistani banks’ agricultural history.

“As a result, the long-declining trend of farmers availing credit facilities --- the number of borrowers has shrunk from 3.4m in 2010 to 2.7m -- has ultimately been reversed. We expect the number of borrowers to increase to 750,000 in the next crop cycle,” he told Dawn.

Some 57.8pc -- 75pc of whom hold less than five acres and 25pc below one acre of land -- of borrowers are availing credit facility for the first time, with 70pc of them owning land less than five acres. The overall ratio of less-than-five acres farmers in the entire portfolio is 67pc. The female participation in the programme is also impressive at an unprecedented scale: out of 18,347 female borrowers, 75pc are availing credit facilities for the first time with an average land holding of 3.7 acres.

“With an anticipated disbursement exceeding Rs75bn for a single crop cycle, this initiative has already set new benchmarks in the industry, enabling farmers to access inputs seamlessly through a digital onboarding process and addressing critical needs during both Rabi and Kharif seasons,” he maintains.

Nevertheless, questions have been raised about the ‘sustainability’ and ‘scalability’ of the scheme.

Zafar Masud admits to these challenges. “Such concerns are not unusual for such a large programme. Sustainability of subsidy for such large initiatives due to fiscal challenges often becomes difficult. Scalability is linked with the sustainability of the programme and other banks coming in to participate in it. Like any bank BoP has a limited capacity to lend. We need others to come in and participate in it.”

He argues that the scheme is for the farmers holding up to five acres of land.

“The bank is lending Rs30,000 per acre and maximum of Rs150,000 per farmer for one crop cycle of six months, charging a flat fee of Rs1,000 per acre. So any farmer below landholding of 12.5 acres can draw up to Rs300,000 a year and pay Rs20,000 or 6.6pc in fee. It means that the government is paying almost 8-9pc subsidy. But as rates come down, the burden of interest rate subsidy it is bearing will also shrink and the ability of the government to ramp up this programme will increase. Thus, the sustainability of this product is quite secure. When you reduce subsidies to zero, you can easily scale it up.”

Once the programme is established, the BoP chief insists, the government may gradually increase the flat fee, which will further reduce subsidy.

“From the farmers standpoint even if they end up paying 10pc it makes sense for them as they pay nearly 50pc to the middleman for purchase of inputs. Once the subsidy is zero, the sky will be the limit.”

Asked about default risk, Masud said the government has given a first loss guarantee to cover potential default losses. “At the end of the first cycle, we will know how much to pay back and how many defaults. This will produce a big scorecard. In a couple of years it will become sustainable.”

Punjab’s Kissan Card initiative is a comprehensive digital ecosystem that brings different provincial and federal departments, such as the PLRA, NADRA, eCIB, and Bank of Punjab together under a single framework. Applicants are verified digitally through creation of an interface between farmers registration database by the PITB and PLRA record. Upon registration and verification of land, verification from NADRA, PMD, eCIB, the bank issues the cards to the farmers.

The initiative isn’t just about crop financing, although it remains the core purpose of launching the initiative, it’s a multifaceted, multilayered targeted intervention. “It’s for the first time that such a big digital transaction network is being created in Punjab, which will have a multi-tier impact on the economy. The intervention provides an end-to-end digital solution. Farmers have to visit the agri centre only to collect the card,” explains Masud.

“It is not just reversing the trend of falling crop financing, but also forcing digitisation of the rural economy as the farmers must have a valid CNIC, a mobile phone SIM linked to their CNIC and computerised revenue record. So this initiative is helping update the three databases of NADRA, telcos and revenue board. Besides, the bank has deployed POS machines at the 2,600 designated fertiliser and seed dealerships across the province to facilitate the farmers, which will lead to documentation of the rural economy in addition to ensuring availability of quality inputs at controlled prices to the farmers. Moreover, it will produce massive data for the government to reach the farmers directly for future smarter interventions through the creation of digital infrastructure,” the BoP president elaborates.

“Once the use case is generated, cheaper and affordable insurance solutions for crops would also become available to hedge losses to the borrowers and lenders both.”

Masud says the successful launch of the scheme wasn’t possible without a handshake between all stakeholders.

“The Punjab government stepped up and involved its field force of the agriculture department in all districts. Attempt is made to prevent and mitigate all risks and weaknesses that could affect this programme’s implementation.”

Published in Dawn, December 30th, 2024