INTRODUCTION

The farmer’s income remains low due to low productivity. The propensity to
save of the majority of farmers is low, therefore they need credit for
investment in agriculture. In fact credit is an essential input in the modern
technology package. The demand for agricultural credit are various and
complex in Pakistan. The main needs of credit are for the following purposes:

1. PAYMENT OF ANCESTRAL DEPT.

The farmers have to repay the debts taken by their elders from money
lenders and relatives. In fact farmers have always been indebted to money
lenders or Mahajins. That is why H. Wolf had to say that “the country is in the
grip of the Mahajins . It is the bond of debt that shackle agriculture”.
Considering the ancestral dept as a pious obligation from elders farmers need
credit to repay the dept.

2. POPULATION PRESSURE ON LAND.

Nearly 72% of our population directly or indirectly depend upon agriculture
for their living. They have no additional source of income. The income they
already have is quite meagre. Even in the wake of this situation the
population pressure is building up,. This is further aggravating the problem
of low overage income. Hence, there is no way out for the farmers except to
get loans.

3. UNCERTAIN WEATHER CONDITION AND EMERGENCIES.

Weather conditions in Pakistan are uncertain. The draught, frosts, heavy rains
and floods are also responsible along with emergencies of ceremonies like
birth, death and marriage for a sizeable part of the loans.

4. LITIGATIONS .
The farmers cherish in indulging themselves into litigations. They being
unable to meet the expenses of litigations from their earned income resort to
obtaining loans.

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5. PURCHASE OF SEED, FERTILIZER AND CATTLE.
Because of low income, the farmers cannot purchase improved seeds and
fertilizer at a suitable time. Moreover the purchase of cattle for food
requirements is also impossible for farmers. After all they require loan for
purchase of these necessities.

6. PAYMENT OF LAND REVENUE AND WTER RATE CHARGES.

Due to low income and heavy expenditures, farmers often borrow money for
payment of land revenue and water rate charges.

7. PURCHASE OF TECHNOLOGY.
Purchase of agricultural technology require large amount. Then the farmers
need short, medium and long term loans for purchase of costly technology so
that the output could be increased.

8. BUILDINGS.

T he construction of houses, godowns and warehouses required heavy

amount which cannot be possible for a farmer availed for construction of such
type of buildings.

TYPE OF AGRICULTURAL CREDIT

Following are different types of agricultural credit , required by the farmers.

1.SHORT-TERM LOAN.
The period of short-term loan ranges up to one year. This loan is repaid after
marketing the product of the next crop. The farmers require short term loans
to meet current agricultural needs e.g. to purchase seed, pesticides,
fertilizers, a Para of bullocks etc. Sometimes short term agricultural loans are
also required to pay land and revenue and to meet emergent needs of the
family.

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2. MEDIUM-TERM LOAN.
The period of the medium-term loans varies from 1 to 5 years. It is repaid in 6
monthly or annual installments. The farmers require this loan for purchase of
implements, cattles for construction of water ways, fences and dairy farms.
The loan is obtained on the security of movable and immovable property of
the farmer.

3. LONG-TERM LOANS.
The period of the long-term loans is more than 5 years. Some times it is
extended for 20 to 25 years. This loan is obtained for making improvements
of permanent nature in land, installation of tube wells, reclamation of land,
construction of buildings, purchase of bulldozer, tractors and heavy
agricultural machinery.

The long-terms are divided into two groups according to the nature of
purposes

3.1.PRODUCTIVE LOANS.
These loans are used for improvement of productivity of land e.g. purchase of
cattles, fertilizer, pesticides, construction of godowns, houses, water ways
and installation of tube wells etc. More over purchase of agricultural
machinery, tractors, bulldozers, harvester, thresher, plantation of trees and
construction of small dams and barrages.

3.2.UN-PRODUCTIVE LOANS.
Sometimes long term loans are used for unproductive purposes e.g. to meet
the house hold need, emergencies, social and ritual ceremonies of death,
birth, marriage, civil and criminal suits, village fair and aqiqa etc. This is a big
burden on the economy and repayment of such loan creates many problems.
About 70% of long terms are used for un productive activities.

SOURCES OF AGRICULTURAL CREDIT

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Agricultural credit is available from two sources, non-institutional and
institutional. These sources of agricultural credit are given in detail in the
following:

1. NON-INSTITUTIONAL SOURCES OF CREDIT.

The money-lenders, village shopkeepers, traders, commission agents, friends,
relatives and landlords are the major sources of non-institutional agricultural
credit. Before partition, the money-lenders were mostly non-Muslim
“Mahajin” who were main suppliers of agricultural credit. Now in Pakistan the
“ Mahajins” are replaced by Pathans money-lenders. The short-term credit
needs of the farmers are met from Pathan, commission agents, shopkeeper
and traders who charge a heavy interest against these loans. Moreover the
credit is also available from friends and relative with easy terms and
conditions.
These sources of credit are generally uncertain and unreliable. They are
mostly of exploitive nature. The loans taken from these sources are primarily
used for non-productive purposes. These sources are approached easily while
availability of loans from government agencies is very tough and time
consuming. Thus the organization and development of the institutional
sources of credit is needed in Pakistan.

2. INSTITUTIONAL SOURCES OF CREDIT.

Following are the major institutional sources of agricultural credit in Pakistan:

i. Taraccavi Loans.

ii. Agricultural Banks.

iii.Commercial Banks.
iv. Co-operative credit.

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i). TRACCAVI LOANS.

These institutional credits were supplied by the provincial

government directly to the farmers. The purpose of such types of credit
is to help the farmers in emergencies of drought, floods and
uneconomic conditions. The farmers can use it for tube wells, wells
maintenance of water ways, construction of godowns, purchase of
seeds, fertilizer, pesticides and agricultural equipment. These loans are
provided against personal guarantee and are difficult to avail because it
depends upon the will of officer to grant loans.

ii). AGRICULTURAL DEVELOPMENT BANK OF PAKISTAN.

The ADBP is the biggest institutional source of agricultural
credit. It was established in 1961 through the merger of Agricultural Bank
of Pakistan and agricultural Development Finance Corporation. The Bank
provides short, medium and long term loans for agricultural activities.

iii). COMMERCIAL BANKS.

Before 1972 commercial banks were not supplying credit to
farmers. They were inducted in the fields to agricultural credit under the
reforms act of 1972. Now these banks are providing loans to farmers to
meet their short and medium term credit requirements. Farmers are
given loans against the security of land, crops or even on personal
security to enable them to purchase inputs i.e. tractors, tube wells,
fertilizers etc. Commercial banks provide loans to farmers under
supervised credit scheme, They also provide interest free loans to small
farmers. State bank of Pakistan gives guarantee on loss of loans up to
50% of loans advanced to farmers.

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iv). CO-OPERATIVE CREDIT.
The cooperative are the oldest institutional source of credit to
farmers. However their performance in the supply of credit to small
farmers is not satisfactory. Credit is mostly used by big farmers through
their pocket societies. Not only this, frauds are hatched in the society to
deprive small farmers from credit facilities.

DISBURSEMENT OF CREDIT

The institutional credit which is mainly supplied by the Agricultural

Development Bank of Pakistan (ADBP), commercial banks and federal
bank for cooperative (FBC) was raised to Rs.13821 million during 1991-
92. It was Rs. 15,893 million during 1987-88.

Agricultural production loans are now being made available to the

farmers at mark up to 7%. A subsidy at the rate of 2% on all production
loans will now be reimbursed on receipt of their loans will now claims.
The limit of loans to small farmers has been raised to Rs .14,000 .

Table : Disbursement Of Credit By Agencies

Year ADBP Cooperat Bank Tacav Total
ive i
1984- 4168 1568 3909 6 9681
85 5308 2049 5791 2 13150
1985- 6031 2495 7811 - 16337
86 7717 3000 5175 - 15892
1986- 8667 2705 3054 - 14426
87 9389 - 3629 - 13834
1987- 6490 3152 4179 - 13821
88
1988-
89
1989-
90
1991-
92

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 PROBLEMS OF AGRICULTURAL CREDIT

It has been observed that the proportion of credit advanced by different

financial institutions to the sector of agriculture is very low compare to their
loans in other sector of the economy. For example , agricultural sector gets
only 9% of the total bank credit whereas industrial sector gets 45% and
business sector gets 31% of the bank credit. The shortage of agricultural credit
is obstructing the growth and modernization of the agricultural sector .

There are so many problems faced by the farmer in the receipt of agricultural
credit from the institutional sources. The major problems can be grouped under
the following heads.

1. FLOW OF CREDIT TO SMALL FARMERS.

There are millions of small farmers through out the country. the actual
flow of credit to small farmers still remain very limited. In spite of
expansion of institutional rural credit, the gain has reached more to the
big landlords. It is therefore, needed that the credit should reach to small
farmers with easy terms and conditions because actually they are the
back bone of agricultural industry.

2. COMPLICATIONS OF ADVANCING.
There are so many complications in the procedure of advancing loans by
the institutional sources. The loans are advanced to farmers on the basis

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of pass book which contains the details of land owned by the farmer.
According to the rural credit survey of 1985, all the farmers having60
hectares and above land have the pass book while only 1% farmers
holding of less than 2 hectares own pass book. This means that the pass
books issued to the farmers have not given benefit to the small farmers.

3. DELAY IN DISBURSEMENT.

It is a matter of common observation that the disbursement of credit is

deliberately delayed even after its approval. The bank officers may have
some ulterior motives in view. This is a serious problem because farmers
get tired of their frequent visits to banks and due to which they hesitate
to get loans.

4. HIGH INTEREST RATE.

The interest rate against the agricultural credit is high and the low
income farmers cannot bear it. On the other hand the interest free loans
are not within the small farmers. These loans are misused by the bankers
on a large scale.

5.BAD DEBTS.

The loans advanced particularly to the big landlords are not being repaid
to the institutions. Because the big landlords have political influence,
therefore they manage to get them written off.

6.APPROACH TO SMALL FARMERS IS EXPENSIVE.

The financial institutions which provide agricultural credit avoid to

advance loans to small framers because of the fact that the procedure
involved in advancing loans is very complicated and expansive.

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7.MARKETING OF AGRICULTURAL PRODUCTS.

No loan is given for marketing and storage of agricultural products while

there is a considerable need to provide loans for marketing storage and
processing of agricultural products.

SOLUTION TO PROBLEMS

The government of Pakistan is taking all possible measures to solve the

problems of rural credit in the country. For example the establishment of
ADBP in 1961, commercial banks, cooperative societies and state bank
activities in provision of agricultural loans.

STATE BANK AND AGRICULTURAL CREDIT

The state bank of Pakistan is playing an active role in providing

agricultural credit to farmers.

This can be noted from the following points:

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i). Agricultural credit department was set up in the state bank of Pakistan
in 1956 to assess credit requirement of farmers from time to time.

ii). In 1970, SBP introduced “refinance and guarantee scheme “

under which it bears 50% loss on bad debts in the agricultural sector.

iii).A mandatory credit target scheme was introduced in 1972 in order to

increase the share of commercial banks in the agricultural credit.

iv).In 1976 federal bank for cooperative was established to increase the
supply of agricultural credit to farmers. The SBP contributed for 75% of
the shares of the bank while the federal in provisional governments
subscribe for the remaining 25% shares. The SBP also gives sufficient
amount of loans to federal bank for cooperative every year at 3% less
than the bank rate.

v). Interest free protection loans scheme was introduced by SBP in

1976.

vi).SBP raised the limit of loans to small farmers to Rs. 14,000/=

vii). Commercial banks are advised to open their branches in rural areas
so that farmers can get credit without any difficulty .

viii). Short term loans are advanced for agricultural business .

ix). Loans are advanced to all financial institutions which are working for
the development of agriculture.

x). The SBP gives loans to agricultural development bank at a rate

of interest which is 6% less than the bank rate and the federal
government compensates the state bank at a rate of 4%.

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 SUMMARY
The farmer’s income remains low due to low productivity. The propensity to
save of the majority of farmers is low, therefore they need credit for
investment in agriculture. In fact credit s essential input in the modern
technology package.

There are different types of agricultural credit, required by the farmers. Short
term loan is a period of short term loans ranges up to one year. This loan is
repaid after marketing the product of the next crop. Medium term loan varies
from one to five years. It is repaid in six monthly or annual installments. Long
term loans is more than five years. Sometimes it is extended for 20 to 25
years.

Agricultural credit is available from two sources, non institutional and

institutional. Non-institutional sources of credit are generally uncertain and
unreliable. They are mostly of exploitive nature. The loans taken from these
sources are primarily used for non productive purposes. Institutional sources of
agricultural credit in Pakistan are Traccavi loans, Agricultural banks,
Commercial banks, Co-operative credit.

The institutional credit which is mainly supplied by the Agricultural

Development Bank of Pakistan (ADBP), commercial banks are Federal Bank for
co-operative (FBC) was raised to Rs.13,821 million during 1991-92. It was
Rs.15,893 million during 1987-88.

There are so many problems faced by the farmer in receipt of agricultural

credit from the institutional sources. The State Bank of Pakistan is playing an
active role in providing agricultural credit to farmers.

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 REFERENCES

Malathvi M.H; Fundamentals of Pakistan Economics; Farooq Kitab Ghar; 1993.

Khwaja A.H; Malik L.A; Economic Development of Pakistan; problems & Polices;
Naveed Publication Lahore; 1993.

Nasir M.S; Haider S.K; Economic of Pakistan; New Fine Printing Press; Lahore;
1988-89.

www.wikipedia.com

www.agricredit.com

www.google.com/agriculturalcredit