Agricultural Credit Crisis in Pakistan

For Pakistan’s farmers, the sowing season is nothing short of a race against time. The first drops of rain soften the soil, creating a narrow yet crucial window in which fields must be ploughed, seeds sown, and nutrients applied. Every passing day matters. If the cycle is delayed, yields fall, livelihoods shrink, and the nation’s food security comes under strain. To keep this cycle running, farmers need one essential fuel i.e. capital. Timely access to credit allows them to buy quality seeds, fertilizers, pesticides, and fuel for machinery. Without it, the season of hope often turns into another round of despair.

Agricultural financing is therefore not just a supportive measure; it is a lifeline for growth and sustainability. Yet, in Pakistan, systemic bottlenecks ensure that funds rarely reach farmers when they are needed most. According to the State Bank of Pakistan (2023), the agricultural credit portfolio crossed Rs. 1.8 trillion in the fiscal year 2022–23, an impressive figure on paper. But beneath this achievement lies a sobering reality. Research shows that while institutional credit satisfies over 60% of the needs of large-scale farmers, smallholders, the true backbone of the rural economy, receive less than 15% of their financing requirements from formal sources (IFPRI, 2023).

This imbalance is more than a statistical gap; it reflects deep-rooted inequities within the financial system. Small farmers, lacking collateral or formal banking relationships, are systematically excluded. Left with no alternative, they are pushed toward informal moneylenders who exploit their vulnerability by charging exorbitant interest rates. The result is a vicious cycle of debt that erodes household income, undermines resilience, and traps farming families in poverty across generations. Unless reforms ensure timely, inclusive, and affordable credit flows, Pakistan’s smallholder farmers will remain caught between the promise of the rains and the harsh reality of financial exclusion.

Bureaucracy and Systemic Failure

The persistent delays in agricultural loan disbursement are not mere administrative lapses but rather the outcome of entrenched systemic weaknesses that weigh most heavily on smallholder farmers. What should be a straightforward process of financial support often turns into a complex ordeal, where time lost translates directly into reduced yields and rising vulnerability.

At the forefront lies the problem of bureaucracy. Farmers, many of whom have limited literacy, are required to provide an array of documents such as land ownership records (Fard), tenancy agreements, and multiple forms of identity verification. These requirements are not only time-consuming but also intimidating, often forcing farmers to rely on middlemen who exploit their desperation. A 2024 study by Karachi University Business School revealed that the average processing time for an agricultural loan from a major commercial bank is 42 days, a stark mismatch with the crucial 10–15 day planting window after the first rains. For many farmers, this delay means the season is lost before financing arrives.

Financial institutions’ risk aversion further compounds the problem. Smallholders, especially those cultivating less than 12.5 acres, are viewed as high-risk clients due to their limited collateral and exposure to climate variability. This results in prolonged verification processes and cautious lending. The data underscores this imbalance: in FY2022–23, only 22% of total agricultural lending reached small farmers, despite their dominance in Pakistan’s cultivated land area (SBP, 2023). Larger landowners, with established relationships and tangible collateral, face fewer hurdles, widening the equity gap.

Additionally, infrastructural and digital divides reinforce exclusion. For many rural households, accessing a bank branch requires an entire day’s travel. While initiatives such as the State Bank’s Kisan Digital Hub and the Raast instant payment system hold promise, uptake remains limited. As of early 2024, digital transactions accounted for less than 20% of agricultural loan disbursements, constrained by unreliable internet and low digital literacy (SBP, 2024).

The Devastating Ripple Effects

The consequences of delayed agricultural credit disbursement extend far beyond individual farmers, setting off ripple effects that undermine livelihoods, food security, and the national economy. What begins as a financial bottleneck at the farm level quickly cascades into systemic challenges with long-term repercussions.

At the most immediate level, agricultural productivity suffers. When credit is not available on time, farmers are forced to postpone planting or reduce the land under cultivation. Many are compelled to compromise on input quality, purchasing cheaper seeds or applying insufficient fertilizer. According to a World Bank assessment (2023), delayed access to credit leads to a 15–30% decline in yields per acre for major crops such as wheat and cotton. Lower yields not only shrink household incomes but also reduce national food supply, creating volatility in staple crop markets.

Financially, the burden is crushing. Farmers unable to wait for institutional loans often resort to informal lenders, locally known as arthis. While these lenders provide quick access to cash, they do so at exploitative interest rates, frequently surpassing 30% per cropping season (Pakistan Poverty Alleviation Fund, 2023). Servicing these loans consumes a significant share of farmers’ earnings, leaving little for reinvestment in productivity or household welfare. Over time, this entrenches families in a cycle of debt dependency, eroding their resilience against future shocks.

At the macroeconomic level, the implications are equally alarming. With agricultural growth stagnating around 2–3%, consistently below the national target of 4–5%, the country has been unable to meet its domestic food requirements. As a result, Pakistan’s food import bill surged past $9 billion in FY2023 (Ministry of National Food Security & Research, 2023). This rising reliance on imports not only widens the trade deficit but also heightens exposure to global price shocks. Simultaneously, declining rural incomes accelerate poverty, forcing vulnerable households into urban migration and further straining city infrastructure.

Solutions for a Timely Credit System

Overcoming the persistent delays in agricultural credit disbursement demands a comprehensive and forward-looking strategy that combines technological innovation, institutional reform, and farmer empowerment. Digitization must play a central role in this transformation. By adopting mobile-first platforms that integrate directly with national systems such as NADRA and the Land Record Management Information System (LRMIS), banks can verify farmer identities and landholdings instantly. Automated credit scoring models, designed to incorporate both traditional and alternative data sources, have the potential to minimize human intervention and reduce processing times from several weeks to just a few days, making credit available within the critical sowing window.

Equally important is the expansion of alternative delivery mechanisms. Rural communities often remain cut off from formal financial services due to limited physical access. Mobile banking vans, agent banking initiatives such as Asaan Finance, and collaborations with telecom operators or local retail shops can ensure that services reach villages directly. Loan disbursements through mobile wallets connected to platforms like Raast can further guarantee instant fund transfers, even to farmers without conventional bank accounts, bridging the digital divide.

Policy innovation must complement these operational reforms. The State Bank of Pakistan can create stronger incentives for timely lending by offering preferential refinancing schemes that reward banks for serving smallholders efficiently. Simultaneously, the introduction of products such as weather-indexed and parametric insurance can reduce banks’ perceived risks, encouraging quicker loan approvals. Finally, sustained financial literacy campaigns will empower farmers to navigate the system more effectively, ensuring they understand both their rights and the available tools for securing timely, affordable credit.

Conclusion

The crisis of delayed agricultural credit in Pakistan is not merely a financial management issue, it is a structural challenge that directly undermines productivity, livelihoods, and national food security. While the government and financial institutions highlight large aggregate lending figures, these numbers obscure the lived reality of millions of smallholder farmers who continue to struggle with delayed or denied access to critical credit. The bureaucratic hurdles, infrastructural gaps, and risk-averse lending practices systematically disadvantage the very farmers who form the backbone of Pakistan’s agricultural economy.

The ripple effects are far-reaching: reduced yields, entrenched cycles of indebtedness, rising food imports, and worsening poverty in rural areas. Left unaddressed, these failures will continue to erode Pakistan’s agricultural resilience at a time when climate variability already poses severe threats.

However, solutions are within reach. By embracing digitization, expanding delivery channels, and fostering policy innovation, the agricultural credit system can be transformed into a timely, inclusive, and farmer-centric model. Such reforms will not only empower smallholders but also strengthen food security and stabilize the national economy. The rains may be beyond human control, but ensuring credit arrives on time is a choice, and one that Pakistan can no longer afford to ignore.

References: IFPRI; Karachi University Business School; Ministry of National Food Security & Research; PPAF; SBP; World Bank

Please note that the views expressed in this article are of the author and do not necessarily reflect the views or policies of any organization.

The writer is affiliated with the Department of Agricultural Economics, Faculty of Agricultural Social Science
Sindh Agriculture University, Tandojam, Pakistan and can be reached at sarmadveesar61@gmail.com

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