Agricultural credit and policy

Problems of Agriculture Credit and Agriculture Credit Policy.

There is need to discuss the issues which are obstructing the supply of credit to farming sector-

1. Uncertainty element in agriculture:

In Pakistan the agriculture cannot be industry. More than 50% of the cultivable land is consisted of uneconomical holdings. The farmers are illiterate, they follow the orthodox techniques of production and fail to make investment in farm due to poverty. They cannot store their produce. The farmer is poor because he is poor. Above all, our agriculture sector is furnished with uncertainty. We have floods as well as droughts. The rains are untimely. The pests badly affects the crops. The financial position of the farmers remains weak. Not to talk of ADBP and Commercial Banks even the Cooperatives are not prepared to give loans to farmers. Thus because of poor financial status, more affects of natural uncertainty in agriculture, the commercial banks an other financial institutions are not prepared to lend to farmers. They think that the cost of advancing loans to farmers are more than their revenues. The relation which existed between banks and industry and commerce is missing in case of banks and farmers. The farmer who is poor and illiterate can not frequently visit the banks as the businessmen do. The supervised credit scheme could not be successful in the presence of our socio-economics set-up.

2. Lack of Securities: 

If we sum the area of small farmers and medium sized farmers their share is 92% of total cultivable area. In such area most of the farms are commonly owned. While borrowing the farmers have to pledge their lands.

But in our rural society land is like the mother of the farmer and he is not prepared to be separated from it. He will prefer not to get the loan rather mortgaging the land. If he is prepared to pledge the land, it will be difficult to ascertain its value as we do not have efficient market for the sale and purchase of lands. It is too difficult to eject the farmers from his land, if he fails to pay the debt. The farmers lacking the pass books will not be able to draw upon the banks.

They have to go registers and pages for the sake of registration of this lands where lot of formalities and malpractices exist. In such situation, they prefer to move to “Informal Sector” for borrowings. The cattle do not serve as good security. They can not be transported easily and their health standard will be affected. The unharvested crops can also serve as security. But the problem of estimation of crop will rise there. If the debtor does not pay the borrowed money he will lose his position. The personal security loans are also taken away by the big landlords as no body is prepared to give security of small farmers.

3. Non-Institutional Credit: 

So many farmers in Pakistan do not have any way out except to go for non-institutional credit. But the friends and relatives are limited source, they fail to supply enough funds. They could not provide loans for consumption and limited production purposes. They hardly provide developmental loans. Then, the farmers move to landlords and commission agents to get the loans. The landlords provide loans to marginal extent. Hence the commission agents help the farmers, but they provide the loans on the promise that the borrowers will sell the crops to them. They give low price for the produce and exploit the farmers. Hence, the non-institutional loans are also advanced in lesser amount.

4. Improper Use of Agriculture Credits: 

So many experts are of view that agriculture credit will be least beneficial if they fail to increase the agriculture output, increase the cultivable area and improve the lot of farmers. But in our country, the productive use of agriculture loans is limited. Most of loans taken by the farmers are for social needs and consumption. The farmers are prepared to sell their seeds, bulls and plows to perform their horse and cattle show fairs, marriages and funerals ceremonies. Thus agriculture loans are fail to alter the lot of small farmers. The burden of debt on them goes on to increase and they may leave this would even without making payment of such loans. Against small loans, the big loans taken away by the landlords are diverting towards power, prestige, litigation and politics. Thus the agriculture loans are not bringing changes in our agriculture sector. In certain cases, the agriculture loans are becoming responsible for increasing inequalities in rural sector.

5. Complicated Procedure and Strict Conditions:

The farmers have to face very strict conditions and complicated procedures while getting the loans. They have to give their pass-books where all the information regarding land are entered. According to Rural Credit Survey (1985), the farmers with land of 60 acres and above had the pass-books while 1% of the farmers with less than 2 acres were having pass-books. Thus, the farmers who were not having pass-books how they could get the loans. Again, the official formalities, the behaviors of surveyors and strict conditions of Bank obstruct the small farmers to get loans. Again, the weak financial position and higher interest rate also hamper loaning on the part of farmers.

6. Recovery of Credit: 

The process of recovery of loans is very much low. As told earlier that due to financial position the small farmers fail to pay back the loans. The big landlords make their credits to be written-off. The farmers should have repaid their loans after harvesting. But this does not happen. The Bank Officers and employees of cooperatives are found wandering in the village to find the debtor so that they could recover the loan. Often the arrest warrants are issued. But the process of loan recovery limited, as the farmers hardly care for repayment of loans and arrest warrants.

Measures to Remove Problems of Agriculture Credits.

Following measures are adopted to remove the problems of agricultural credit.

1. The uncertainly elements in agriculture be minimized. The farmers must be hardworking so that they could utilize the farms efficiently. As a result, the agriculture production increases and agriculture sector will become profitable in this way, the flow of agriculture credit will go up.

2. The provision of agriculture loans be linked with productive capacity and efficiency of land, rather securities.

3. The farmers be provided with complete package of agriculture inputs instead of just loans as the case of supervised credit. Therefore, this scheme should be effectively implemented.

4. The better advisory services be provided regarding agriculture marketing. In this way, the farmers could be able to get fair prices of their produce and easily repay loans.

5. A revolution in agriculture sector be brought about so that people could pay more attention on developmental works, rather social traditions.