Agricultural Credit
  Report No: ; Type: Report/Evaluation Memorandum ; Country: Pakistan; Region: South Asia; Sector: Agricultural Credit; Major Sector: Agriculture;
                                                             ProjectID: P010350


Pakistan: Agricultural Credit Project (Loan 3226-PAK/Credit 2153-PK)
   The Agricultural Credit Project, supported by Loan 3226-PAK for US$ 148.5 million and Credit 2153-PAK for
  US$1.5 million, was approved in FY90. Loan disbursements were suspended in FY93 and eventually US$84 million
  of the loan amount was canceled in FY94, two years ahead of the planned closing date in FY96, because of covenant
  violations. The credit closed as planned in FY96; an additional US$0.82 million of the credit amount was canceled.
  The Asian Development Bank, the Overseas Economic Cooperation Fund, the International Fund for Agricultural
  Development and the participating institutions cofinanced the project. The FAO/World Bank Cooperative Program
  prepared the Implementation Completion Report (ICR) for the South Asia Regional Office. The borrower's
  comments on the ICR are attached but comments from the cofinanciers are missing.

          The project's overall objective was to transform Pakistan's agricultural credit system to make it viable and
  responsive to the sowing needs of the agricultural sector. It intended to achieve this through a program designed to
  (i) expand credit delivery with emphasis on assistance, women, small farmers and the landless; (ii) establish a policy
  framework to improve the efficiency of rural financial intermediation and the viability of financial institutions; (iii)
  develop institutional capabilities including improving the efficiency of loan supervision and collection; (iv) provide
  long term finance for on-lending- by the participating banks; and (v) expand the capabilities of participating banks to
  mobilize deposits. The project's innovative features included introducing a mobile delivery system that targeted
  female beneficiaries and involving the nationalized commercial banks in rural credit in an effort to increase
  competition. It also intended to develop linkages between credit and extension, provide funds for research on
  agricultural credit and undertake a pilot project in one district to computerize land records.

           The project failed to meet its sectoral policy, institutional, financial or gender- objectives, and only partially
  met its physical objectives. The borrower persistently violated the special legal covenants governing, the on-
  lending, rates, the loan recovery performance. and the emergency tendency through the Agricultural Development
  Bank of Pakistan. This failure to comply with the covenants led the Bank to suspend over 50 percent of the loan in
  FY93 and finally to cancel it in FY94.

      The ICR rates project outcome as unsatisfactory, institutional development as negligible, sustainability as
  unlikely and Bank performance as unsatisfactory. OED agrees with these ratios. A comment on Bank performance
  in particular is in order. While the Bank's performance during supervision was satisfactory, it failed to adequately
  take into account the institutional shortcomings and the poor portfolio quality of the Agricultural Development Bank
  of Pakistan that were evident at the time of project preparation and appraisal, compromising the project's quality at
  entry.

          The project offers several key lessons for agricultural credit projects. It demonstrates that project appraisal
  must adequately consider politically sensitive issues such a-s the de-regulation of interest rates and the autonomy of
  participating institutions. It also shows that lessons from earlier operations should be fully understood and
  considered to ensure the project's quality at entry. And, finally, it Emphasizes that a sub-sector specific (in this case
  agricultural credit) operation is an inappropriate instant for institutional development when the overall (in this case
  the financial banking) sector is unsound.

  The ICR is satisfactory. No audit is planned.