Farmers are now able to avail of bank loans for financing by putting their goods and agricultural products in electronic warehousing.
This way farmers will not have to sell their crops at unfavorable prices and have a shorter shelf-life of their goods to make sure that cash flows are available to cover the requirements for inputs for this year’s crop. This will also aid in reducing the post-harvest loss.
IFC the private sector division of World Bank with the State Government of Pakistan cooperates with banks in extending this facility as well as its education.
In this respect, State Bank of Pakistan (SBP) Director-General Sima Kamil Wednesday stated that the training session about Electronic Warehousing Receipt Financing (EWRF) for banks will be crucial to aid SBP’s latest initiative to help promote EWRF throughout the country.
In a two-day training session, she stated banks would be able to gain an in-depth understanding of EWRF products, as well as understanding the risk analysis process, the price determination process as well as the best international practices.
She urged senior bankers to utilize the information of EWRF learned during the workshop and spread it to the banking industry to ensure seamless implementation.
Finances and Electronic Warehousing
EWRF is a system that allows farmers can get financing from banks through the placement of their agricultural products and other commodities. In this way, farmers will not have to sell their products at a price that is not favorable to secure cash flows to cover the requirements for inputs for their next harvest.
It also assists in reducing Pakistan’s post-harvest losses. The adoption of EWRF by banks and the increased use will not just allow banks to increase the amount of credit distributed to farmers for buying Electronic Warehousing, but will also aid them in increasing the outreach of credit.
The deputy governor pointed out that agriculture contributes more than one-quarter of our GDP, and employs about half of the workforce. However, she was disappointed that those working in agriculture face difficulties in obtaining financing and modernizing infrastructure that could assist them in storage or disposing of promptly of their agricultural goods.
She said SBP was the first to initiate EWRF because of the significance of the Electronic Warehousing system to improve nutrition security and limiting losses after harvest and providing bank loans for farmers using the commodities they use as collateral.
She was hopeful that it would allow processors and traders to acquire the inputs they require for their businesses, such as fuel, seeds, and fertilizers before and during harvest when their seasonal financial needs are substantial.
The agreement will also promote the investment in infrastructure for agriculture by building new, modern, and commercially viable warehouse infrastructure. At the time of its launch 25 banks were signed System Usage Agreements (SLAs) with Naymat Collateral Management Company, and SBP established indicative financial targets for the banks in FY 2021-22 as well as 2022-23.
These banks have begun financing maize-based crops in several districts in Punjab as part of the EWRF system.
The deputy governor praised the help provided by the International Finance Corporation (IFC) for support for technical issues to the Government of Pakistan and other important stakeholders to build blocks to facilitate the implementation of EWRF throughout Pakistan.
She also advised bankers in the senior ranks to utilize the relevant information about EWRF and spread it throughout the business world to ensure ease of implementation.
In his remarks at the event, The Country Manager at IFC, Afghanistan as well as Pakistan Zeeshan Sheikh noted that the most innovative financing methods such as Electronic Warehousing receipts are crucial since they could unlock an enormous amount of capital, helping the agriculture sector, and in the long-term, aiding employment in addition to economic growth. He also praised his fellow countrymen, the Government of Japan for supporting the EWR project.
SBP has organized a two-day education workshop that was in line with the EWRF Uptake Action Plan in collaboration with IFC (World Bank). In the course, international specialists in IFC and Pakistan presented their knowledge and experience with bank officials about the different ways to use collateralized commodity financing as well as EWRF.
The program helped provide a greater understanding of EWRF for banks, which can assist them in extending loans to farmers in exchange for agricultural commodities to use as collateral.