Staling Food Grains: Warehouse receipt financing remains a far cry in Pakistan.

• Author: Kazmi, Shabbir

Byline: Shabbir Kazmi

Pakistan is among the top producers of cotton, sugarcane and food grains, i.e. wheat, rice and maize. However, significantly large quantities of food grains stale before reaching the market. This on one hand deprives growers of their rightful return and on the other hand does not allow the country to earn foreign exchange from export of surplus quantities. State Bank of Pakistan (SBP) embarked upon Warehouse Receipt Financing (WRF) program and issued the framework nearly six years ago.

The central bank considers that development of WRF is inevitable for achieving food security, improving return to farmers and above all saving the output that goes stale before reaching the market. This requires millions of dollars investment for the construction of well organized warehousing infrastructure, imposition of stringent grading standards and ensuring proper collateral management.

In this venture, apart from the central bank and commercial banks (both conventional and Islamic), the other key stakeholders include Securities and Exchange Commission of Pakistan (SECP), federal and provincial governments, Pakistan Mercantile Exchange (PMEX), insurance companies, warehouse operators, collateral managers and farmers' association. However, it remains a fact that unless modern warehouses are constructed in the country, this dream is not likely to become a reality.

It is worth noting that Securities and Exchange Commission of Pakistan (SECP) has finally come up with Draft Regulations regarding Collateral Management Companies, it has last floated similar draft in 2016, which had yielded no result. It is necessary to point out that SBP had come up with WRF programs more than five years ago, but required framework remained missing and the program could not take off.

Over the years it also became evident that WRF program could not become a norm unless modern warehouses are established and clearly defined policy governing warehouse operating system is introduced in the country.

After going through the latest Draft Regulations, it appears that instead of offering a plausible solution for offering an efficient WRF mechanism, the apex regulator is trying to create yet another supra authority, for accreditation and participation of general public is discouraged.

The feeling develops after reading two of the stipulated two conditions

1) flotation of a public limited company and 2) fixing of minimum capital at Rs200 million. Both the conditions...