Such credit is provided for short periods of time and at high rates of interest and cannot, therefore, be utilised for land development or long- term improvement of agriculture. By contrast, institutional credit is basically un-exploitive in character. The rate of interest is not only low but varies from case to case. Different rates of interest are charged for different types of loans and different categories of farmers. Institutional agencies also draw a clear-cut distinction between short-term credit and long- term credit. Moreover, they recognise the organic link between credit and other needs of the farmers and seek to achieve an integration of credit with such needs.
They must also be provided marketing assistance so that they can obtain the best possible return from their produce. Only institutions like co-operative societies, commercial banks, etc. Rural indebtedness is also likely to have some undesirable social consequences. Consequently, they become bonded labourers.
This creates discontent among them and adds to rural tensions. Since the problem of rural indebtedness has two major dimensions, to solve the problem we have to adopt a two-fold strategy. In case of owning farm land above 5. However, the amount of credit disbursed was Rs.
The highest coverage 5. An increasing gap between the richest and poorest section of the rural population in access to formal credit was also found in another study Khandker and Faruqee, In , poorest households received only 1 percent of the formal credit against 60 percent by the richest households. In , this gap had widened as poorest households received 2 percent and the richest households received 72 percent of the formal credit.
Informal lenders in this study also remained the major credit providers for the poor households. The findings of this study are presented in Table 3. The study found that households with large operational holding more than 25 acres , who are about 4 percent of total borrowers, obtained 42 percent of total credit exclusively from formal sources. In contrast, households with no operational holding, who constitute 34 percent of the borrowing households, received only 5 percent of loan extended by formal sources. The subsistence farmers, comprising 35 percent of borrowing households, got only 18 percent of total formal loans in The highest proportions, of those who can be categorized as the poorest households, depend exclusively on informal sources.
According to this study of those that rely exclusively on informal sources 31 percent were subsistence farmers and 25 percent were landless households. It was confirmed by many studies that there was a discrepancy between the official statistics and surveys data of the agriculture credit market. Small and tenant farmers rely predominantly on non-institutional sources for their credit needs Punjab Economic Research Institute ; Applied Economics Research Centre ; Scott and Redding, ; Malik, , , and ; Qureshi and Shah, Access to institutional credit hindered by unacceptable of collateral for institutional sources.
As land was the most commonly accepted form of collateral by all institutional sources, therefore, tenants and landless households are forced to borrow from landlords or commission agents. The government has sponsored several subsidized credit schemes in the past to facilitate the small farmers.
However, the distortions introduced by these schemes coupled with other weaknesses in the system further reinforced the domination of the large farmers. Low recovery rates and high default were the main features of formal credit. This problem was also coupled by the weighted rate of return per year was low on subsidize credit. According to the report of the Committee on Rural Finance, SBP Commercial banks have not only exhibited a lack of initiative in increasing their client base but have also been biased towards urban areas in terms of credit disbursement.
A picture of the rural-urban credit disparity can be obtained from the data on advances and deposits by rural urban branches of Commercial banks. The advance to deposit ratio was Ironically this situation has persisted despite a much larger recovery to loan ratio for rural areas as compared to urban regions. However, Table: 3. The target is usually fixed by properly assessing the credit needs of the agriculturist population of Pakistan.
During financial year , banks disbursed Rs Table 3. However, the banks have consistently failed in achieving the disbursement targets. This decision of the State Bank of Pakistan has opened up options for the commercial banks to avoid lending to the small farmers and achieve their agriculture credit targets by providing loans to NGOs, RSPNs and Corporate Farms. A result a chunk of loans aimed for the small farmers does not reach to them.
Meanwhile, a biggest chunk of agriculture loan goes to the industrial sector. This loan is very tactfully diverted to the industry in the name of agro based industry. The agricultural credit policy of the state bank of Pakistan reads as under. According to the farmers the officials of the ZBTL very tactically misuse the above mentioned policy of state Bank as they provided loans to the non agricultural influential people bringing their loan portfolio into the agriculture loan. In this way the loan portfolio of the small growers is in fact used by the non agricultural influential people.
Despite strict and clear cut instructions of state Bank of Pakistan, the commercial Banks are still reluctant in increasing their agriculture loan portfolio. Therefore the agriculture sector is still not properly benefiting g from the commercial banks lending. Considering the urban population as their key clients the banks usually focus on Table 3.
For small farmers, who are less mobile, it is difficult to visit bank branches located in urban or semi-urban areas. In value terms, their shares are even smaller, 10 percent and 7 percent of the total value of deposit and advance, respectively. The access to finance gap is even starker in the case of farmers. The few upper- income large farmers enjoy almost 10 times higher access to formal finance Large formers get even more informal credit than their less fortunate counterparts percent vs.
Such skewed distribution of farm credit negatively affects the poverty level of agricultural households, and prevents faster development in rural areas. The number of scheduled banks in Pakistan was 40 at end December The number of commercial banks has declined from 41 to 26 through mergers, acquisition and closure.
Agricultural Credit: Institutions and Issues
In banking sector, specialized government owned banks have made only limited contribution in their niche markets. Only 25 percent of the total bank deposits and 17 percent of the total borrowers are from rural areas. In value terms, their shares are even smaller, 10 percent and 7 percent of the total value of deposits and advances, respectively Only 15 percent of farmers are reached by the financial system as a whole including the commercial banks, agricultural banks, and other financial institutions.
Total credit to rural areas is Rs The bulk of rural finance volumes are in agricultural finance Rs While microcredit volumes are skewed toward rural areas, rural microcredit currently represents merely 17 percent of total rural credit. The few upper-income large farmers enjoy almost 10 times higher access to formal finance Large farmers get even more informal credit than their less fortunate counterparts—82 percent vs. Urban and rural gap in the bank branches are also evident from the table 3.
Problems of Agricultural Credit in India (with Suggested Remedies)
The private banks have branches in the urban areas and only branches in the rural areas of Pakistan. This shows large level disparity in the number of urban and rural branches of the banks in Pakistan. Agriculture is the main livelihood in all the provinces of Pakistan with majority of the provincial populations associated with agriculture and related livelihoods. However, there is big gap in the equality in the disbursement of agriculture credit among the four province of Pakistan.
- Shadows and Wings!
- Study Material-2.
- Anno Zombus: Year 1; First Quarter.
- Problems of Agricultural Credit in India (with Suggested Remedies)?
The data shows that the major chunk of agriculture credit [ Province-wise disbursement reveals that major portion of agricultural credit that is An amount of Rs 6. According to the figures given in table 3. The figures show that there are urban and rural bank branches in Punjab, which are On the contrary Passbook was introduced in by the Federal Government to make it easier for farmers to obtain agricultural credit from lending institutions.
The farmer is required to buy a set of two passbooks one red, one green from the post office and have the particulars concerning his land endorsed by the revenue department, after which he is eligible for a loan of up to 60 percent of the value of his land. The Revenue department retains the red book and updates it according to information supplied by the lender generally a bank ; the green book is retained by the bank as a guarantee for the loan.
However, the process of getting passbook issued is cumbersome and the farmers allege that the Revenue Department has made the process lengthy only to open window for bribes of issuing passbook. Non availability of passbooks has emerged as the key challenge faced by the small growers in receiving credit from the banks. Without the book, the banks do not lend money. Table 5 Jecobabad 3.
As a 19 Khan result these farmers 20 Tharparkar are unable to 21 Thatta receive credit from 22 Umerkot 23 Karachi 0 0 0 the banks for Total , , , agriculture Source: Board of Revenue Government of Sindh purpose. Same is the situation in Balochistan, where thousands of farmers have no passbook to enable them to receive credit from the formal sources of credit.
The absence of passbook leaves out over 3. These families own around nine million acres. Thus the credit mechanism leaves out these farming families. Although, on the governmental level steps have been taken to simplify the loan procedure, however, still there are many steps the growers has to take for receiving credit for agriculture purposes.
Institutions and organizations
This usually results in delays in the disbursement of the credit. This lengthy process also some times is used by the officials of bank to blackmail the growers to pay them some kickback for timely loan approval and disbursal. More over frequent unnecessary objections on the passbook are raised by the bankers and the bankers demand for patwari to be present personally for certification of khasra. In case the growers wait and depend on bank loan, usually they fail in cultivating their crops. A number of farmers who had previously applied for formal credit informed that farmers usually apply for credit from banks but due to delay in the loan disbursement they borrow the inputs from private money lenders.
The delay on the part of banks is a serious problem to the extent that loan is usually approved when the grower already grows his crop. Thus the grower is compelled to fail victim of the middlemen. There was one probable problem that could arise even if a loan was granted by an institution. Was the loan became available in time and what was the time lag? This affected the eventual productivity of such loan especially where short run loans were concerned.
A fertilizer loan, for example, if not made available on time would be useless to the farmer.
The main reason for the delayed disbursement of loans was as noncooperation and lengthy procedure. Across the agro-climatic regions, more than 75 percent credit was disbursed in one quarter except Balochistan. Though the figures were acceptable but in Pakistan majority of loans were for short-term production with a per acre upper limit.
The last revision in the indicative credit limits was made in when Agriculture Credit Department, SBP issued a circular in October wherein indicative per acre credit limits for major crops as well as for minor crops, including orchards, were revised to meet the genuine credit needs of the farming community.
These revised indicative credit limits are as given in the table 3. However, according to the growers there has been drastic price fluctuations especially increase in the prices of different commodities resulting in increase in the input prices of almost all the crops.
Therefore, it is important that the indicative per acre limit of all the crops should be revised and increased. This is important for ensuring that the growers receive adequate credit to cultivate per acre crops. Ongoing research will be critical to maintain efficient rural financial markets that can provide consistent and competitively priced credit for rural America. Paul N.
The following images related to this document are available:
Emerald Group Publishing Limited. Please share your general feedback. You can start or join in a discussion here.