Credit Risk Management Practices Used by Banks in Agricultural Finance: A Case Study of Pakistan

Purpose: Agricultural sector is an important sector of Pakistan’s economy. Agriculture plays a significant role in the economic development of Pakistan. Its contribution to GDP is about 23 % and approximately 60 % of Pakistan’s total population live in the rural areas and most of them earn their livelihood from agriculture. Due to the green revolution, rapid changes have been occurring in production technologies, and methods have been changed. As more capital is required to adopt these methods and technologies, so the small farmers cannot afford these methods. They need finances for production and investment purpose. The small farmer has very limited ability to agricultural finance for both production and investment needs and they are facing a shortfall of credit. Banks hesitate to grant agriculture credit because of higher credit risk. The main purpose of this research paper is to find out the credit risk faced by the banks of Pakistan and risk management techniques used by these banks. Research methodology: This research is basically quantitative in nature, and a Standard questionnaire is used for the collection of data on credit risk and its management techniques from the banks. A sample of 45 bank branches of 17 banks that grant agriculture credit has been taken and questionnaire were being filled by credit officers of the agricultural sections of these banks. The Frequency distribution technique was applied throug