Dynamics of Agri - Financing

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Dynamics of Agri - Financing
Lecture By M. Farooq Abid Tung
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Agriculture Economy Strengths

• Back bone and main stay of economy. Major
  contributor to GDP(21). Provides 80 raw
  material to local industry.
• Major contributor of food, fiber shelter.
• Major source of foreign exchange earning through
  exports (65 to70Exports).
• Wide scope, Milk Production 5th in the world.
  Livestock share is 45 of agricultural share in
  G.D.P.
• Ample human resource deployment sector. Provides
  employment to more than 52 of our work source.
• Contribution to Banks deposit is 25.
• Stationed, Permanently located, secured loaning
  sector.
• Instant borrower history. Small size credit. Low
  default history.
• Shortest gestation period. Short term investment.
• Easy to recover, low resistance area, friendly
  environment.
• Pollution free contended nature. Low cost living
  standard.

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WEAKNESSES OF AGRI SECTOR

• Lack of institutional credit due to Limited
  network of financial institution and reluctance
  of bankers.
• Low or lack of interaction with agriculturists.
  Poor information about each other. Lack of
  extension services.
• Non-availability of collateral, particularly by
  landless farmers.
• Extra ordinary profit taking. High rate of
  interest by informal sector.
• Middleman influence, Formal financing in agri
  sector is expensive.
• Lack of education and initiative in farmer,
  traditional approach. Unskilled labour. Lack of
  water, crop, soil fertilizer management.
• Unorganized non-documented sector. Needs /
  Requirements and production values not
  registered.
• Remote area, lack of farm to market approach
  transportation facilities.
• Non-availability of communication services.
• Lack of farm market infra structures of
  marketing information.
• High population growth rate, unawareness of
  family planning.
• Poor management dependence in family elders.
• Lack of insurance coverage. Crop, asset life.
  Hidden strength.

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OPPORTUNITIES IN AGRI SECTOR

• Government of Pakistan SBP priority sector.
• Farmer needs are much higher than supply of
  credit. Big gap is available. Rs.500 billion
  required - Rs.200 to Rs.220 billion presently
  disbursed.
• Easy to lend at higher rate of mark up. Dire need
  low resistance.
• Ample opportunity of deployment of excess
  liquidity available in the Banking Sector.
• Commercially viable sector, great credit
  potential and absorption capacity in the sector.
• Vast range of area of operation. More needs,
  scope of development, credit starved sector.
• Diversified and multipurpose financing.
• Massive migration of labour to cities can be
  checked / stopped.
• Corporate financing will become a niche in
  lending market.
• NGOs outsourcing Agencies, companies are
  available in the market.

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PRESENT FUTURE THREATS TO AGRI SECTOR

• Implementation of WTO. Open, competitive,
  commodity pricing. Phytosenitation.
• Bankers, community reluctance. Fear of default.
• Natural calamities. High risk. Water shortage.
• High rate of mark up, extra ordinary profit
  taking by non-institutional creditors.
• Defective and unorganized markets. Imbalance
  between prices of inputs outputs. Rising trend
  of cost of production. Higher rate of interest as
  compared to profit ratio.
• Lack of media projection, non-recognition of
  problems. Monopoly of multinationals.
• Non-friendly attitude, LIP-SERVICE by
  agencies/functionaries, increasing taxations
  public private enterprises. GST 15 on inputs.
• Non-availability of developed NGOs community
  organizations. Lack of research. Out dated farm
  practices.
• Lack of coordination towards common causes
  goals.
• Sheepism, lack of awareness about economics,
  demand supply in market.
• Poor class, low saving, low holding capacity.
  Increasing level of poverty.
• Loosing soil fertility, intensive use.
• Show Pump culture. Non implementations of land
  reforms. Continuous divisions.
• Non-availability of subsidy, tax holidays as
  compared to neighbors .
• Slow non-implementation of court orders.

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Traditional Financing
Inputs
Tractors
Tube wells
Implements
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Diversified Financing
Crops
Agri- Farm Sector
Horticulture
Floriculture
Inputs
Agri - OFF Farm Sector
Dairy Development
Livestock, Goat Sheep. Poultry, Fisheries.
Financing Value Addition Chain Farm to Market
Development
Water Management
Community Based Lending
Farm Transport
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Financing Schemes

• Askari Kissan Evergreen Finance
• Purchase of seeds, fertilizers, pesticides,
  Orchards and Nursery, Manual Sprays, Sericulture,
  Apiculture and Non Farm working capital etc.
• Askari Kissan Tractor Finance
• Purchase of New Tractors
• Askari Kissan Aabpashi Finance
• Installation of tube wells, water management
  equipment, modules culverts, lining of water
  channels, solar energy plants pumps, sprinkle
  and drip irrigation system.
• Askari Kissan Green House Tunnel Finance
• Construction of Green Houses Tunnels for
  growing seasons vegetables / fruits in controlled
  environment.

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• Askari Kissan Livestock Development Finance
• Purchase of cattle / milch animals, goat / sheep
  etc.
• Askari Kissan Model Dairy Finance
• Purchase of Farm Cooling tanks, fodder
  harvesters, hay bailers, animal cooling system,
  any other machinery / equipment for dairy
  farming.
• Askari Kissan Gold Fish Finance
• Renting / leasing of ponds tanks, purchase of
  inputs i.e. oilcakes/ rice barn, purchase of
  medicines, nets, boxes, packing material and any
  other overhead expenses.
• Askari Kissan Farm Mechanization Finance
• Purchase of agri implements, power tillers, boom
  sprayers, cultivators, riggers, drills, press
  machines for wheat straws and dry fodder etc.
  

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• Askari Kissan White Pearl Finance
• Purchase of milking animals, feed grinders,
  mixing machines, vaccination, medicines including
  artificial insemination material equipment,
  labor, electricity and fuel expenses etc.
• Askari Kissan Murghban Finance
• Purchase of chicks, feed and raising charges,
  construction of sheds i.e. conventional /
  controlled environment, machinery, equipment,
  packing material and other overhead expenses.
• Askari Kissan Transport Finance
• Purchase of new motorcycles, small pickups,
  trucks, auto-trailers, vans and chillers carriers
  etc.

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• Askari Kissan Farm Storage Finance
• On Farm and Off Farm construction / repair and
  renovation (including purchase of machinery, cost
  of fixture) Pucca Godown, Storage facility, Bins,
  Silos etc.
• Askari Kissan Samar Bahisht Finance
• Cultivation / growing of fruits / Nurseries,
  purchase of seeds, fertilizers, farm machinery /
  equipment, packing material, transportation cost,
  overhead expenses etc.
• Askari Kissan Gulban Finance
• Cultivation / growing of flowers for decorative /
  export purposes, purchase of seeds, fertilizers,
  labor, packing material, transportation and over
  head expenses etc.
• Asan Mali Shaulat
• Cane Procurement Receipt / Deferred Payment
  Voucher discounting / purchase / payment facility
  

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Islamic Modes which can be applied for Agri
Financing without much debate.

• 1. Murabahah - It is a sale in which seller
  discloses the cost of goods
  and the profit.
• Salam - It is a sale whereby the seller to
  supply some specific goods
  to the buyer at a future date at
• agreed price fully paid in advance.
• 3. Ijarah - Is a contract whereby the owner
  of an asset, other than consumables,
  transfers its usufruct to another person at
  an agreed period for agreed consideration.
• Istisnaa - It is a sale at agreed price
  whereby the buyer places an
• order to manufacture, assemble or construct
  the agreed assets to be
  delivered in future .
• Diminishing - It refers to a partnership
  where profits are shared as Musharaka
  per agreed ratio and losses are shared in
  proportion of capital or
  investment

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Other Islamic Modes being considered for
implementation
Musawamah - It is a general and regular kind of
sale in which price of the commodity to be
traded is bargained between seller and buyer
without any reference to the cost incurred by
the seller.
Musaqaat - Majority of the fuqah agree
that Musaqah is an agreement between two
individuals wherein one provides the orchards
or trees owned and the other the labour and
enterprise for irrigation services and up keep
and share the profit as per agreement.
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Other Islamic Modes being considered for
implementation
Muzaraat - Musharakah has several
derivatives . Muzaraa for instance, is a
special kind Musharakah. It is defined as a
partnership in farming whereby one or more
individuals enter into a contract to invest in
an agricultural enterprise or operation. Output
or produce is shared between the partners in
accordance with the agreement stipulated in
the contract.
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Murabahah

• Purchase of inputs for crop production i.e.
• Seeds
• Fertilizer
• Insecticides
• Herbicides
• Weedicides
• Manual Sprayers
• Sericulture
• Apiculture

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Salam

1. Labor Charges, electricity charges and
   maintenance of farm machinery / implements.
2. Lining of water courses, Cost of land leveling.
3. Different working capital requirements and
   running expenses.

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Ijarah

• Farm Mechanization Financing i.e.
• Purchase of agri implements, equipment i.e.
  Trailers Threshers
• Power tiller
• Power Boom sprayer
• Plough
• Cultivators
• Rigers / drills
• Rotavators
• Driggers
• Cotton Picker
• Saw machines for crate making
• Press machines for wheat straw and dry fodder
• Chiesel ploughs
• Potato planter
• Sugarcane planter
• Rice trance planter
• Self propelled reaper for harvesting wheat and
  rice crops

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Ijarah

• Transport Financing including
• Purchase of tractors
• Refrigeration vans
• Farm cooling tanks
• Motorcycles for milking
• Small pickups
• Mini trucks and chiller carriers
• Aabpashi Financing
• Installation of Tube wells / Turbine, Sprinkle /
  drip system for water management, solar energy
  plants, pumps for irrigation system.
• Dairy Farming (Milk processing plants, other
  machineries etc.)

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Diminishing Musharkah

• Transport Financing including
• Purchase of tractors
• Refrigeration vans
• Farm cooling tanks
• Motorcycles for milkman
• Small pickups
• Mini trucks and chiller carriers
• Livestock Financing Includes
• Purchase of cattle, buffaloes, sheep etc.
• Construction of sheds, storeroom etc.
• Land / forest development and enhancement.
• Dairy Farming (Milk processing Plants, other
  machineries etc)

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Diminishing Musharkah
Construction of godowns and cold
storage Development of Dairy Livestock
farms Construction and improvement of livestock
laboratories Setting up seeds processing and
milk chilling units Installation of fruit and
vegetable machinery
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Istisnaa / Diminishing Musharkah
Establishing of Green Houses Construction of
godowns and cold storage Development of Dairy
Livestock farms Construction and improvement of
livestock laboratories Setting up seeds
processing and milk chilling units Installation
of fruit and vegetable machinery
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Thank You