SBP and PBA take steps to develop agriculture, SMEs and digital and technology sectors in the banking sector

KARACHI – The Governor of State Bank of Pakistan (SBP) chaired the second meeting of the Steering Committee on July 4, 2024 on initiatives to strengthen the agriculture sector, small and medium enterprises (SMEs), and digital and technology sector in the banking sector. These steps are part of the ongoing efforts of SBP and Pakistan Banks Association (PBA) to promote financial inclusion and support economic growth in the country.

SBP has sent letters to all banks to develop and submit their five-year plans and strategies for the expansion of agriculture and SME finance to significantly increase these portfolios in the next five years. As part of its Vision 2028, SBP aims to increase its agriculture finance portfolio to Rs 1 lakh crore and total disbursements to cross Rs 3 lakh crore by the end of June 2025. It further envisages doubling SME finance to Rs 1 lakh crore in the next five years with Rs 100 crore to be added by the end of June 2025.

The SBP is working closely with the PBA to support commercial banks in increasing their lending in both sectors to stimulate entrepreneurship, create jobs, help farmers increase productivity, invest in modern equipment, expand their operations and drive economic development at the grassroots level. In addition, the central bank has taken steps to promote digital and technological solutions in the banking sector, encouraging banks to adopt innovative technologies to develop digital payments and develop digital lending platforms to improve access to financial services for underserved populations and increase productivity, especially in the agriculture and SME sectors, and most importantly reduce cash in circulation to achieve much-needed reduction in inflation and therefore interest rates.

The PBA highlighted its key initiatives to deepen and expand financial services for priority sectors, including i) the development of an SME and Agri-Food Environment Performance Index (SEPI/AEPI) to assess, improve and maintain the performance of both sectors, ii) the promotion of electronic warehouse receipt financing, including warehouse accreditation, iii) the revitalization of agricultural cooperatives, iv) the establishment of trust services to increase e-commerce, v) the installation of cash deposit machines (CDM) in commercial bank branches to reduce the amount of currency in circulation, vi) the development of a virtual prepaid card solution at points of sale to encourage digital payments, and vii) the establishment of a Private Equity Fund to support fintech companies in developing solutions and use cases that help reduce the amount of currency in circulation and help farmers and SMEs access financial services.

The SBP Governor appreciated the initiatives and stressed that active collaboration between the SBP and the PBA to promote financing for priority sectors is crucial to ensure continued access to financial services for these sectors and also to support inclusive growth. Zafar Masud, Chairman of the PBA, stated that “These measures underscore the PBA’s commitment to supporting key sectors of the economy and driving sustainable growth in Pakistan. With a focus on agriculture, SMEs, and digital and digital technologies, we are working towards creating a more inclusive, resilient and competitive banking sector that serves the needs of all stakeholders.” The Finance Minister of Pakistan is himself overseeing these efforts as the initiatives were identified at his request.