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SBP issues guidelines for horticulture sector

KARACHI (December 25 2007): State Bank of Pakistan (SBP) in consultation with stakeholders has developed new `Guidelines on Horticulture Financing` to facilitate banks in developing specific products to increase the flow of credit to the horticulture sector.

The SBP sources said that these guidelines provide details about financing to fruit, vegetables, flowers and ornamental plants production besides providing details about the eligibility criteria for borrowers, types of financing, collateral requirements, fixation of loan limit, repayment terms, loan monitoring mechanism, etc.

Banks may adopt these guidelines in the present form or with some adjustments to suit their organisational and operational needs and market characteristics, subject to compliance with SBP`s regulations for agriculture financing, SBP sources said.

Disbursement to horticulture was only around Rs 6.5 billion in 2006-07 against total agri disbursement of Rs 169 billion during the same period, sources said and added that one of the main reasons for low disbursement to horticulture sector is lack of awareness regarding this sector.

Therefore, in order to facilitate the banks, the guidelines for financing have been developed by the SBP in collaboration with banks, Minfal, PHDEB, farmer`s representatives and other stakeholders. Banks can benefit from the guidelines to tap the sector that promises high returns to the horticulturist, banks and the economy as a whole. As per guidelines banks are required to develop sound and reliable loan monitoring and tracking system to ensure proper utilisation and quality of loan and its timely repayments.

Individuals/partnership concerns and all types of legal entities engaged in horticulture related activities or desirous to establish new horticulture farming and having sufficient knowledge and relevant experience are eligible to draw loan under horticulture financing scheme, the guidelines said.

Financing facilities may be extended, provided bank is satisfied with the capacity of the borrower/sponsor to manage and run the horticulture activities.

To get financing facility borrower should be a holder of CNIC while usual requirements for corporate clients would apply and not be a defaulter of any bank/financial institution. However, this condition may be relaxed in case the bank is satisfied with creditworthiness of the borrower and that earlier default was circumstantial and not willful.

As per guidelines, banks can provide working capital finance on revolving basis for seeds/root-stock and nursery plants, water - charges for purchase of tube-well water, fertilisers and gypsum, chemicals, including herbicides, weedicides, fungicides, detergents, disinfectants and waxes, sprayers, farm labour, laser levelling charges, labour charges for fruits, vegetables sowing or transplantation etc. In addition charges for purchase of diesel and engine oil for tractor and for tube-well operation.

The loan limit shall be assessed by banks on the basis of financing request appraisal or feasibility report. The banks should undertake due diligence and market survey to assess the prices of equipment`s, vehicles and assets to be financed for horticulture farming, the sources said.

Banks at their own discretion may sanction revolving credit limits to the borrowers automatically renewable on annual basis for working capital financing. The loans provided under revolving credit scheme are required to be adjusted every year along with up to date mark up. Moreover, banks can extend medium to long term financing for the capital expenditure.

Regarding the interest, SBP has instructed that banks shall determine mark up rate keeping in view KIBOR rate and their cost of funds etc in line with their credit policy. In case of collateral based lending, banks can accept one or more of the following collaterals as per their lending policies/procedures.

In case of hypothecated stocks or assets, they should be comprehensively insured from reputed insurance company or group of companies. It is advisable that banks should sensitise and educate their borrowers about the importance of having an insurance cover and also make insurance as an integral part of their respective horticulture financing products, the guidelines said.

In order to secure the bank`s interest for loan against third party guarantee, bank shall ensure proper security of its exposure in accordance with the relevant SBP regulations.

According to the guidelines, the indirect financiers will have to provide a list of their bonafide horticulture farmers or farms along with their computerised NIC numbers and addresses. Finance would be directly disbursed in the account of bonafide horticulture farmers or farms. The guarantor will be responsible for repayment of loan as per terms and conditions agreed between the bank and the indirect financier.

Banks shall ensure that financing to horticulture sector is being made in compliance with SBP`s regulations for agriculture financing, including classification of non-performing loans.

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