Govt unveils Risk Coverage Scheme to boost agri loans

August 20, 2025 (MLN): In a bid to enhance financial access for small and marginalized farmers, the Government of Pakistan has rolled out a new Risk Coverage Scheme for banks and microfinance institutions.

This Scheme offers first-loss protection and incentives to expand credit flow into underserved agricultural regions.

According to a circular issued by the State Bank of Pakistan’s Agriculture Credit & Financial Inclusion Department (ACFID), the scheme will remain effective from July 1, 2025, to June 30, 2028, covering production loans for crops as well as financing for dairy, livestock, and fisheries.

Key Features of the Scheme

• Eligible Farmers:

  • In Punjab and Sindh, only small farmers and those with subsistence landholdings qualify.

  • In Khyber Pakhtunkhwa, Balochistan, AJK, and Gilgit-Baltistan, all types of farms are eligible.

• Loan Size & Tenor: Farmers can avail financing of up to Rs3 million with a tenor of 12 months (18 months for sugarcane).

• Risk Coverage: The government will extend 10% first-loss coverage on the principal amount of fresh loans to new borrowers and incremental outstanding portfolio for existing borrowers. A loan will be deemed a loss if repayment remains overdue for 12 months.

• Participating Institutions: All commercial banks, Islamic banks, specialized banks, and microfinance banks (MFBs) are eligible to participate.

• Claim Settlement: Risk coverage claims must be lodged electronically with the SBP’s Financial Inclusion Support Department (FISD) within 15 working days after the end of each quarter.

Recovery Process

The scheme also lays down detailed procedures for recoveries from delinquent borrowers. Banks will continue their recovery efforts even after receiving risk coverage payments.

Recovered amounts will either be adjusted against pending claims, deposited with SBP’s FISD for settlement across banks, or credited to the federal government’s miscellaneous account, depending on the case.

Incentives for Banks

To further encourage outreach, the federal government will pay Rs10,000 per new borrower to banks, based on the net increase in their borrower base compared to the previous fiscal year.

Claims for these incentives must also be submitted electronically to the FISD within 15 working days of fiscal year-end.

The initiative is aimed at de-risking agricultural lending for banks and encouraging them to finance smallholder farmers, particularly in regions traditionally underserved by formal credit channels.

The scheme is expected to improve financial inclusion, reduce rural credit disparities, and support the government’s broader agenda of strengthening the agriculture sector, a critical pillar of Pakistan’s economy.

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