The Credit Guarantee for Small and Marginalized Farmers (CGSMF) is a government-backed initiative to enhance access to formal credit for small farmers in Pakistan. These farmers, comprising a significant portion of the agricultural sector, often face challenges in obtaining loans due to small landholdings and lack of collateral, forcing them to resort to informal sources at unfavourable terms.
Objective
The scheme aims to encourage participating commercial, specialized, and microfinance banks (PFIs) to provide collateral-free loans to small and marginalized farmers for their working capital needs.
Scope
- Loan Coverage: Production loans up to Rs. 100,000 per farmer.
- Tenor: Based on cropping cycles, up to a maximum of one year (adjusted for sugarcane crops).
- Purpose: Includes working capital, purchase of input supplies, and rentals of farm implements.
Eligibility of Borrowers
The scheme is applicable to:
- Farmers: Owning or cultivating land up to:
- 5 acres for irrigated land.
- 10 acres of rain-fed land.
- Criteria: Based on cultivation verification, lack of collateral, cash flows, e-CIB record, and compliance with bank credit policies.
Funding Arrangements for CGSMF
- Guarantee Fund: Initiated with an initial allocation of Rs. One billion, supplemented annually as required.
- Allocation: Managed by SBP to ensure that guarantee limits assigned to PFIs do not exceed available funds.
Management of the CGSMF Scheme
- Executing Agency: State Bank of Pakistan (SBP), with Banking Services Corporation (BSC) serving as the implementing agency.
- Credit Guarantee Office: SBP
The Development Finance Support Department (DFSD) oversees scheme implementation.
Commencement and Period
- Effective: From the date of circulation by SBP until discontinued by the government.
- Coverage: Only fresh loans after scheme implementation are eligible.
Allocation of Guarantee Limits
- Annual Allocation: SBP allocates guarantee limits based on PFI portfolios and market potential.
- Monitoring: Quarterly assessment of PFI performance in adherence to allocated limits.
Risk Sharing Mechanism
- Coverage: 50% of outstanding loan principal in case of non-repayment, classified as ‘Substandard’; remaining 50% borne by the PFI.
Payment of Claims
- Procedure: Detailed SOPs ensure reimbursement to PFIs upon verified claims submission.
- Recovery: PFIs continue recovery efforts post-claim reimbursement, with all recoveries reported to CGO.
Operational Modalities
- Claim Submission: PFIs submit claims bi-annually, reviewed internally and reimbursed by CGO.
- Inspection: SBP’s Banking Inspection Department verifies claims validity and compliance.
Monitoring of Guaranteed Portfolio
- Reporting: Quarterly reports from PFIs to CGO, with potential post-disbursement verifications.
Faqs for CGSMF
What is the objective of the CGSMF scheme?
The CGSMF aims to facilitate small and marginalized farmers in Pakistan by providing collateral-free loans for their working capital needs through government-backed credit guarantees.
Who is eligible to benefit from the CGSMF scheme?
The scheme applies to farmers owning or cultivating up to 5 acres for irrigated land and 10 acres for rain-fed land. Eligibility criteria include cultivation verification, absence of collateral, positive cash flows, e-CIB record, and compliance with bank credit policies.
What is the loan coverage and purpose under the CGSMF?
Farmers can access production loans up to Rs. 100,000 per farmer, primarily intended for working capital, purchase of input supplies, and rentals of farm implements.
How are funding arrangements managed under the CGSMF?
The scheme operates with an initial allocation of Rs. One billion for the Guarantee Fund, supplemented annually as required. SBP manages allocation to ensure PFIs do not exceed available funds.
Who oversees the management of the CGSMF scheme?
The State Bank of Pakistan (SBP), supported by its Banking Services Corporation (BSC), serves as the executing and implementing agency. The Development Finance Support Department (DFSD) oversees scheme implementation.
How long is the CGSMF scheme effective, and what loans does it cover?
The scheme covers fresh loans initiated after its implementation date until discontinued by the government. It focuses on loans related to agricultural production and working capital needs.
How are guarantee limits allocated to participating financial institutions (PFIs)?
SBP allocates guarantee limits annually based on PFI portfolios and market potential. PFIs are monitored quarterly to ensure adherence to allocated limits.
What is the risk-sharing mechanism under the CGSMF?
In case of non-repayment classified as ‘Substandard,’ the scheme covers 50% of the outstanding loan principal, with the remaining 50% borne by the PFI.
How are claims processed and payments made under the CGSMF?
PFIs submit claims bi-annually to SBP’s Credit Guarantee Office (CGO), which verifies and reimburses eligible claims. PFIs continue recovery efforts post-reimbursement.
What are the operational modalities for PFIs participating in the CGSMF?
PFIs adhere to detailed Standard Operating Procedures (SOPs), including bi-annual claim submissions and verification by SBP’s Banking Inspection Department.
What impact does the CGSMF scheme aim to achieve?
The scheme aims to enhance financial inclusion and agricultural productivity among small and marginalized farmers, contributing to economic stability in rural Pakistan.
Conclusion
The CGSMF scheme represents a crucial step towards financial inclusion for small and marginalized farmers in Pakistan, aiming to alleviate their credit access constraints through a structured credit guarantee mechanism. By partnering with PFIs and ensuring effective fund management and monitoring, the scheme seeks to enhance agricultural productivity and economic stability in rural areas.
For detailed procedures and guidelines, refer to CGSMF Annexure-2 of the scheme document.