Banking Sector's Role in Agricultural Growth in Pakistan

Agriculture remains the bedrock of Pakistan's economy, employing approximately 37.4% of the national labor force and contributing 22.9% to the country’s GDP (GoP, 2024). The sector not only provides livelihoods for millions of rural households but also underpins food security, supports industrial supply chains, and fuels exports. Despite its pivotal role, Pakistan’s agriculture is constrained by chronic underinvestment, inadequate infrastructure, and limited access to formal financial services. These challenges translate into low productivity, outdated farming practices, and persistent rural poverty, particularly among smallholder farmers who constitute most agricultural producers.

Banking institutions have a critical role to play in transforming this scenario. By offering accessible credit, structured savings schemes, insurance products, and tailored investment instruments, banks can help farmers modernize operations, adopt climate-smart technologies, and expand value-added production. For instance, credit for high-yield seeds, drip irrigation systems, or mechanized equipment can significantly improve output, reduce post-harvest losses, and enhance market competitiveness. Similarly, rural deposit schemes and microfinance solutions can provide households with the financial stability needed to invest in education, health, and farm improvements, fostering overall socio-economic resilience.

Strengthening the agricultural finance ecosystem is therefore not merely a sector-specific necessity but a cornerstone for inclusive national development. Accessible and timely financial services empower farmers to transition from subsistence to commercial agriculture, stimulate rural economies, and generate employment opportunities beyond the farm gate. This article emphasizes that the banking sector is an indispensable instrument for driving sustainable agricultural modernization, enhancing rural livelihoods, and promoting equitable economic growth. By dismantling financial barriers, fostering innovation, and supporting smallholder farmers, banks can catalyze a transformation that extends benefits across Pakistan’s broader economy and society.

Banking as a Driver of Agricultural Growth and Modernization

Agricultural credit is the lifeblood that enables farmers to transition from subsistence-level operations to commercial, market-oriented production. Access to formal financing empowers farmers to adopt yield-enhancing technologies such as high-quality seeds, precision fertilizers, modern irrigation systems, and mechanized equipment, all of which are essential for improving productivity and competitiveness. In Pakistan, institutions like the Zarai Taraqiati Bank Limited (ZTBL) and major commercial banks have played a pivotal role in this transformation, providing targeted loans that address the specific needs of rural farmers. The agricultural credit portfolio has experienced significant growth; in the fiscal year 2022-23, the banking sector disbursed PKR 1.422 trillion in agricultural loans, surpassing the government’s target by 104.3% (State Bank of Pakistan, 2023). This increase underscores both the demand for and the potential impact of financial support in the agriculture sector.

The State Bank of Pakistan (SBP) has been a key catalyst in this progress through its regulatory framework, including mandatory lending targets for agriculture and small and medium-sized enterprises (SMEs). Beyond traditional lending, there has been a strategic shift towards Value Chain Financing, which represents a more integrated approach to agricultural development. Instead of providing credit to farmers in isolation, banks now finance entire production chains, linking input suppliers, producers, processors, and distributors. This approach not only improves operational efficiency but also reduces post-harvest losses and stabilizes farmers’ incomes by ensuring secure access to both essential inputs and output markets (World Bank, 2023).

By embedding farmers within these structured financial networks, banks contribute to sustainable modernization, enabling adoption of innovative technologies, enhancing market access, and ultimately fostering resilient rural economies. The evolution of banking from simple credit provision to comprehensive value chain support demonstrates its indispensable role in driving agricultural growth, transforming livelihoods, and strengthening Pakistan’s broader economy.

Persistent Challenges in Agricultural Financing

Despite significant quantitative progress in agricultural financing, qualitative gaps and structural challenges continue to limit access for the most vulnerable farmers, particularly smallholders who form the backbone of Pakistan’s rural economy. A major barrier is the lack of formal land titles, acceptable collateral, and proper documentation, which automatically disqualifies many farmers from accessing formal banking services (IFC, 2022). Without these prerequisites, even creditworthy and motivated farmers remain excluded from financial systems, forcing them to rely on informal lenders who often charge exorbitant interest rates and impose unfavorable repayment conditions.

Another critical issue is the persistent mismatch between financial products and the unique risk profile of agriculture. Farming is inherently exposed to unpredictable factors such as weather volatility, pest infestations, and sudden market price fluctuations. Conventional loans, high-interest rates, and lengthy approval processes fail to accommodate these risks, deterring farmers from seeking formal credit and limiting the effectiveness of available financial instruments. As a result, even when credit is theoretically available, it often does not translate into meaningful investment in modern technologies, inputs, or infrastructure.

Infrastructural and literacy challenges further exacerbate these constraints. Many rural areas remain underserved by physical bank branches, leaving farmers with limited or inconvenient access to formal financial institutions. Low levels of financial literacy, coupled with inadequate digital skills, reduce farmers’ confidence and ability to navigate banking procedures, loan applications, and online financial platforms (Ahmad & Bashir, 2019). Collectively, these factors reinforce the perception of agriculture as a high-risk sector for banks, prompting conservative lending policies and frequent credit rationing. This structural exclusion not only hampers investment and productivity in agriculture but also perpetuates cycles of rural poverty, vulnerability, and dependence on informal financial sources. Addressing these persistent challenges is therefore essential for creating an inclusive agricultural finance ecosystem capable of supporting sustainable rural development, modernizing farm practices, and strengthening overall economic resilience.

Driving Financial Inclusion and Rural Development

Digital innovation is rapidly transforming rural finance in Pakistan, providing a powerful tool to overcome long-standing barriers to financial inclusion. Mobile banking, digital wallets, and branchless banking platforms are bringing financial services directly to populations that were previously excluded from formal credit and savings systems. By drastically lowering transaction costs and simplifying access to financial resources, these technologies are emerging as a primary driver of rural development (KPMG, 2025). They allow farmers and rural households to receive payments, manage savings, and access loans securely, effectively integrating them into the formal economy and enhancing economic resilience.

The State Bank of Pakistan’s Raast instant payment system, combined with the rapid growth of Branchless Banking (BB) accounts, has been a game-changer. As of December 2023, the number of branchless banking accounts in Pakistan had reached 114 million, with quarterly transaction values amounting to PKR 4.7 trillion (State Bank of Pakistan, 2024). These platforms have enabled secure receipt of remittances, digital loan disbursements, and convenient savings, empowering rural households to better manage cash flows and invest in agricultural productivity.

To consolidate these gains and bridge remaining gaps, a multi-pronged policy approach is essential. Financial products must become more flexible and inclusive, moving beyond collateral-based lending toward models based on farm history, cash flow analysis, and group guarantees (AFI, 2023). Risk mitigation mechanisms, such as credit guarantee schemes and loan-linked agricultural insurance, need expansion to de-risk lending for financial institutions. Simultaneously, enhancing digital and financial literacy among rural populations is critical, ensuring that farmers understand and can utilize modern financial tools effectively. Promoting gender-inclusive finance is equally important, with targeted programs providing women access to accounts, loans, and support for agro-based SMEs (Shahzadi, 2024). Finally, fostering strategic partnerships between banks, Agri-tech firms, and farmer cooperatives can create efficient, localized systems to deliver credit to the last mile, ensuring that financial resources reach the most underserved and vulnerable communities. Together, these measures can transform digital financial inclusion into a powerful engine for equitable, sustainable rural development.

Conclusion

In conclusion, the banking sector plays an indispensable role in promoting agricultural growth and rural development in Pakistan. By providing accessible credit, structured savings, insurance products, and tailored financial instruments, banks enable farmers to modernize practices, adopt innovative technologies, and integrate into value chains that enhance productivity and market access. Institutions such as Zarai Taraqiati Bank Limited (ZTBL) and major commercial banks, supported by regulatory frameworks from the State Bank of Pakistan, have significantly expanded agricultural financing, demonstrating the potential of structured, timely, and inclusive credit to transform rural livelihoods.

Despite these advances, persistent challenges remain. Limited access to collateral, ill-suited financial products, infrastructural gaps, and low levels of financial and digital literacy continue to restrict smallholder farmers from fully benefiting from formal finance. Moreover, women and marginalized groups face disproportionate barriers that hinder equitable participation. Addressing these constraints through flexible lending models, risk mitigation mechanisms, digital literacy programs, and gender-inclusive initiatives is essential for building a resilient and inclusive agricultural finance ecosystem.

Digital innovations such as mobile banking, branchless banking, and the Raast instant payment system are bridging these gaps, integrating rural households into the formal economy, and reducing reliance on informal lenders. Strengthening these efforts, combined with strategic partnerships among banks, Agri-tech firms, and cooperatives, can catalyze sustainable rural development, improve livelihoods, and contribute to equitable economic growth across Pakistan.

References: AFI; Ahmad & Bashir; GoP; IFC; KPMG; Shahzadi; 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, Sindh Agriculture University, Tandojam and can be reached at kashikaimkhani@gmail.com

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