Pakistan’s Crop Loan Takaful Initiative Highlighted by AGRIFIN
AGRIFIN is an initiative funded by the Bill & Melinda Gates Foundation and managed by the World Bank, to transfer capacity on agriculture finance. It has been established to support the development of sustainable agriculture finance models that will increase access to finance.
To share and understand crop loan takaful schemes in Pakistan and the solutions being provided by the takaful industry in association with the Banking Sector, a webinar, “Providing Crop Loan Takaful in Pakistan” was arranged by Agrifin on February 26, 2013.
Agrifin, and The Bill and Melinda Gates Foundation Invited Mr. Azfar Arshad, EVP and Head of Operations at Jubilee General Takaful Company and Mr. Kashif Thanvi, General Manager and Head of Agricultural and Rural Finance at Habib Bank Limited to present their views and perspectives from their industry’s point of view on the subject, to their worldwide audience. Both of these gentlemen were members of the Central Bank’s Task Force on Crop Loan Takaful.
Ms. Maria Pagura hosted this session; she currently works as a Senior Program Officer for the Agriculture and Rural Development Department at the World Bank and is responsible for the development and management of AgriFin’s global platform on agriculture finance.
In 2008, Pakistan launched a crop loan takaful scheme. This was the outcome of a two year effort of the Central Bank’s Task force on Crop Loan takaful which comprised representatives from banks, takaful companies, farmers and the federal government. The Agrifin webinar intended to give succinct picture of how this product was developed and the challenges faced in its implementation.
Agriculture is the backbone of Pakistan’s Economy and accounts for 21% of the GDP. Together with agro-based products it fetches 60% of the country’s total export earnings and more than 45% of the labor force is engaged in this sector.
Banking Industry Perspective:
Mr. Kashif Thanvi initiated the event with his presentation on the topic. He addressed the challenges involved in coming up with a feasible crop loan takaful framework such as cost of takaful, premium collection mechanism, claim trigger, role of government, retakaful treaties, willingness of farmers to pay for takaful, perils to be covered, and lack of recorded historical data to evaluate probability of calamities, etc.
Moving on he highlighted the salient features of the crop loan takaful scheme. He further added that the aggregate liability of the takaful companies is limited to 300% of the premiums. The multi-peril takaful covers excessive rains, flood, draught, hailstorm, frost, crop related viral and bacterial attacks, and damage by locusts. The framework also defines a maximum ceiling on the rate of premium to be charged from a farmer
He concluded his presentation by accentuating on the most important challenge being faced, which is the mandatory nature of the product, i.e if a farmer gets a bank loan for any of the major crops; the loan has to be participant.
Takaful Industry Perspective
Mr. Azfar Arshad provided a glimpse on this product from the perspective of Takaful Industry and also emphasized on how Jubilee in particular and the takaful industry in general is working to provide solutions to the crop loan issues being faced.
He further emphasized on how Jubilee views and considers crop takaful as an opportunity to extend the takaful innovation to the grass root level. Greater half of Pakistan’s population is rural based where they primarily need protection against natural calamities, as small farmers are the predominant affectees of these calamities. In most instances their lifestyle is compromised and at times their survival is also at stake.
Adding on to the positive angles of crop loan takaful, Mr. Azfar Arshad pointed out that this product is gradually providing a foothold for penetration and awareness of takaful concepts in the masses, where currently the takaful penetration is at 0.7% of GDP, one of the lowest in the region.
Jubilee has partnered with some of the major providers of agriculture finance in Pakistan including HBL and in 2012 provided crop loan takaful to more than 62,000 farmers all over Pakistan. Jubilee also has the privilege of being the pioneer of first ever web based crop takaful portal in Pakistan, called Jubilee Kashtkar. This technological innovation allows Jubilee to gauge and validate the data and issue takaful certificates on real time basis at the branch level where the loan is disbursed with minimal human intervention.
Another aspect highlighted by him was the launch of this product by takaful fraternity in Pakistan with minimal government input. This however forced the scope of the cover to be snipped to accommodate and maximum utilize the resources available to the takaful industry. The scope of the cover has been limited by capping the indemnity to input cost only, introduction of an aggregate limit and the concept of calamity trigger.
According to Mr. Azfar Arshad, the idea behind tailoring the scope of the cover was with the view to commence “The Concept” where the basic product has been launched and can be expanded upon by increasing the indemnity threshold which is currently limited to the input cost of loan and which may in future be extended to cover yield and revenue as well and in future may increase the existing aggregate limit from 300% to a much higher level along with probability of introducing the concept of variable pricing.
He concluded his address by mentioning about jubilee being in the final stages of launching a Livestock takaful product which will be offered to financial institutions to protect the livestock portfolio which currently constitutes more than 50% of the overall agricultural portfolio.
Once both the gentlemen were done with their addresses, a short Q&A session was conducted where the questions from the audience, posted during the presentations were responded to, by both the speakers. The questions were primarily related to the moral hazards involved with the calamity declarations being announced by the government and existence of political instability in Pakistan and about how the awareness is being made for this product.
Over all a 60 minute webinar, with audience from all over the world and speakers from both banking and takaful sector provided extensive and useful information on the crop loan takaful and its prospects in Pakistan. Such initiatives have become a necessity for development and growth of our agriculture sector and this event appropriately highlighted the contributions being made.
This webinar was attended by leaders of the Takaful, Banking and Agriculture industry from all over the world and the developments discussed were welcomed and appreciated immensely.
Maliha Shuja | Deputy Manager | Operations