Karachi, August 20, 2025 – The State Bank of Pakistan (SBP) on Wednesday announced a significant new initiative designed to uplift the country’s agricultural sector by launching a financing scheme exclusively for small and marginalized farmers.
The scheme, backed by government support, aims to expand access to credit, especially for those engaged in farming activities in remote, underserved, and unbanked areas of Pakistan.
According to ACFID Circular No. 02 of 2025, the scheme is tailored to address one of the most pressing challenges in the agriculture sector: limited access to affordable credit. Many farmers, particularly in rural belts, remain dependent on informal lending channels that charge exorbitant interest rates. This new SBP-backed program provides a risk coverage mechanism for commercial banks, Islamic banks, specialized banks, and microfinance banks (MFBs) to confidently extend fresh financing to farmers without fear of excessive default losses.
Key Features of the Scheme
The financing scheme covers a wide scope, including production loans for crops, dairy, livestock, and fisheries, applicable between July 1, 2025, and June 30, 2028. Eligible farmers in Punjab and Sindh must fall under the category of subsistence or small landholders, while in Khyber Pakhtunkhwa, Balochistan, Azad Jammu & Kashmir, and Gilgit-Baltistan, all farmers regardless of landholding size will be able to benefit.
The maximum loan size under the scheme is Rs3 million, with repayment periods of up to 12 months. For sugarcane, however, the tenor has been extended to 18 months, acknowledging the crop’s longer production cycle. Importantly, the government will provide 10% first-loss coverage on outstanding agricultural loan portfolios, ensuring that banks can absorb potential risks while continuing to lend aggressively in the sector.
Incentives for Banks and Risk Coverage
The government has introduced additional incentives to encourage banks to attract new borrowers. For every new farmer added to a bank’s loan portfolio, the federal government will pay Rs10,000 to the respective institution, covering operational costs. This incentive structure is designed to ensure that banks expand their outreach year after year, particularly in rural districts where formal banking penetration has historically been weak.
Moreover, the SBP has laid out a transparent system for handling recoveries from delinquent borrowers. While risk coverage ensures that banks are protected against first losses, they will still be required to pursue recoveries through their usual mechanisms. Recovered funds will either be adjusted against pending claims or deposited with the SBP as per established guidelines.
A Boost for Agricultural Growth
By extending credit facilities to farmers through structured financing, the SBP hopes to promote food security, increase crop yields, and support rural livelihoods. Agriculture is the backbone of Pakistan’s economy, and empowering farmers with easier access to loans for seeds, fertilizers, machinery, and livestock is expected to bring long-term benefits to both the rural population and the national economy.
The SBP has urged all banks and MFBs to ensure the successful implementation of this scheme, viewing it as a transformative step toward financial inclusion and sustainable agricultural growth in Pakistan.