Positive news was received in May 2017 that improved credit access in Pakistan. The Asian Development Bank (ADB) recently agreed on providing a $20 million loan to help Pakistan’s Khushhali Microfinance Bank (KMBL), with the goal of expanding access to credit for agriculture, focused on related borrowers and small businesses.

Before this major loan, only 24 percent of the adult population was in possession of a bank account with a formal financial institution, while microfinance enterprises lacked the financing from the banking sector. Therefore, this loan will be of major help for KMBL – Pakistan’s largest microfinance bank – as it will finally provide the necessary financial services to micro, small, medium-sized enterprises and ultimately increase credit access in Pakistan. ADP’s goal is to increase the provision of financial services from 5,700 today to over 30,000 by 2020.

This loan will mostly focus on expanding agricultural credit as it represents the largest economy in Pakistan, accounting for 26 percent of its gross domestic product (GDP). By providing farmers with credit, they are able to improve agricultural production and come up with innovative agricultural technologies. It will also improve the standard of living of the rural poor agricultural society as a whole, by increasing crop production and therefore, farmers’ revenues.

One of the major challenges faced by farmers concerns the input expenditure per hectare that requires farmers to provide proof of credit, despite their level of assets in comparison with the credit they are seeking. This means that high input spending can be linked to higher productivity and growth.

For developing countries like Pakistan, agricultural production is low and therefore, there is not enough income being generated by farmers. Credit agencies, such as ADB, are therefore crucial for improving agricultural practices, by allowing credit access in Pakistan for farmers that need to make use of their working capital, fixed capital and consumer goods.

Ghalib Nishtar, the President of KMBL, said that finally having better credit access in Pakistan will “deepen the market penetration of KMBL into the rural economy” and increase openings of small businesses that are important for economic growth and prosperity.

– Sarah Soutoul

Photo: Flickr