Government Launches Risk Coverage Scheme for Small Farmers

In an effort to improve credit access for small-scale and marginalized farmers, the government has introduced a novel risk coverage program for banks and microfinance banks (MFBs).

The State Bank of Pakistan (SBP) stated that the initiative is designed to encourage financial institutions to offer new financing options to farmers by providing government-backed protection against potential credit losses.

The program, effective from July 1, 2025, to June 30, 2028, will enable banks to grant production loans for crops, as well as financing for dairy, livestock, and fisheries, with the government sharing a portion of the associated risk.

This scheme encompasses all commercial, Islamic, and specialized banks, along with MFBs.

Farmers with small and subsistence holdings in Sindh and Punjab, along with all types of landholding farmers in KPK, Balochistan, AJK, Gilgit-Baltistan, can leverage this initiative.

Financing of up to Rs3 million will be accessible under the program, featuring a tenor of up to 12 months, except for sugarcane, which has an 18-month tenor.

According to the SBP, a loan will be deemed a loss if the repayment of the loan or installment is overdue by 12 months.

The government will provide 10% first loss coverage on the outstanding agricultural loan portfolio, applicable to new borrowers and additional financing for existing borrowers.

Significantly, the payment of a risk coverage claim will not prevent banks from pursuing the recovery of the defaulted amount. The SBP noted that banks shall adhere to their standard loan recovery procedures.

To incentivize banks to attract new borrowers, the Federal Government will provide Rs10,000 per new borrower to each bank to offset operational costs, based on the net increase in the number of borrowers compared to the previous year.

The SBP stated that banks are required to evaluate their net increase in the number of borrowers at the close of each fiscal year and electronically submit claims with the Financial Inclusion Support Department (FISD), SBP BSC within 15 working days.