Agricultural credit plays an important role in development as it helps the farmers and entrepreneurs to undertake new investments and adopt new technologies to enhance productivity. Pakistan rural credit market is characterised by the co-existence of formal, semi-formal and informal lenders.
The evidence suggests that informal finance is not much conducive to agricultural development because it is expensive and short-term in nature. It is largely used for consumption smoothing. Moreover, due to its small size it does not help to spur investment and growth.
Historically speaking, Agricultural Development Bank, now known as Zarai Taraqiati Bank Limited (ZTBL), has been the major provider of formal loans in Pakistan but this position has changed since 2003-04 and the commercial banks like NBP, HBL, MCB, UBL, ABL and Domestic Private Commercial Banks (DPCBs) have collectively emerged as major providers of agriculture loans. In the year 2005-06, commercial banks disbursed agriculture credit worth Rs 83953.18 million against Rs 47429.7 million supplied by ZTBL. The ZTBL in its individual capacity still dominates the formal institutions.
The analysis of the anatomy and dynamics of agricultural credit supplied by the commercial banks and the ZTBL may reveal certain important aspects not visible to the common man and certain important conclusions can be drawn in the light of this analysis. Let us start this analysis from most important variable ie size of land holding-wise detail of loan advanced by ZTBL.
THE DETAILS OF LOANS ADVANCED BY THE ZTBL DURING THE LAST 10 YEARS ARE GIVEN IN TABLE 1:
LOANS ADVANCED BY ZARAI TARAQIATI BANK LIMITED (BY SIZE OF HOLDING):
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(Rs in "000")
Land Less Owner-Size of holding
Tenant Loans Upto 5.06 hects. Over 5.06 to 20.23 Over 20.23 to 40.47 Over 40.47 Total
hects hects hects. -
Year No Amount No Amount No Amount No Amount No Amount Amount
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1996-97 8673 933140 70793 4090573 43357 5393997 5000 808562 1768 336757 11563029
(8%) (35%) (47%) (7%) (3%) -
1997-98 15251 2185713 201131 8539070 89650 9218487 13791 1882422 1857 302979 22127971
(10%) (38%) (42%) (9%) (1%) -
1998-99 13111 809828 295414 14229188 413706 11964807 14106 1927764 7101 954940 29886527
(3%) (48%) (40%) (6%) (3%) -
1999-2000 6785 277920 255366 12775888 88898 9192561 10806 1362750 4405 561853 24170972
(1%) (53%) (38%) (6%) (2%) -
2000-01 10845 378232 296912 15062941 95142 10065954 10175 1342761 3567 443278 27293167
(1%) (55%) (37%) (5%) (2%) -
2001-02 7356 194841 318213 17653415 87207 9204435 8761 1083034 2971 712712 28848437
(.50%) (61%) (32%) (4%) (2.5%) -
200-03 2578 66449 323346 17391642 84606 9907777 9416 1244500 3948 497200 29107568
(0.22%) (60%) (34%) (4%) (1.78%) -
2003-04 4536 147835 337888 18774499 75568 9303487 7842 1107847 2749 359810 29693478
(0.50%) (63%) (31%) (4%) (1.50%) -
2004-05 5558 221381 5137415 23832260 74543 11383664 7859 1350210 2649 429408 37216923
(0.50%) (64%) (31%) (4%) (1.50%) -
2005-06 2909 147921 320592 28948667 73067 15735715 8251 1913136 3233 684260 47429699
(0.50%) (61%) (33%) (4%) (1.50%) -
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Source: Various issues of Agricultural Statistics of Pakistan published by MINFAL
FOLLOWING TRENDS ARE EASILY DISCERNABLE FROM TABLE 1:
i. There is a visible growth in the agricultural credit supplied by the ZTBL but there is a declining trend in terms of percentage in loans advanced to tenants as in 1996-97 it constituted about 8 percent of the total loans but this percentage declined to 0.5 percent in 2005-06, implying thereby that access of tenants to the formal credit is still very restricted despite expansion in volume of agricultural loans.
Different variables like distance effect, education effect, stringent collateral requirements, inherent bias of the institution towards the landlords and other incapabilities of the tenants hindering their participation in active economic life, are mainly responsible for this phenomenon.
ii. The data suggests that there is an appreciable increase in the credit advanced to small farmers owning a minimum threshold of land. In 1996-97, 35 percent of the total credit given by ZTBL was to the small farmers, which increased to 61 percent in the year 2005-06.
iii. Still major chunk of credit is being advanced to comparatively large landowners who constitute approximately 4 percent of rural households but this 4 percent accounts for about 40 percent of formal finance. According to 2000 Agricultural Census, only 37 percent rural households owned land, and 61 percent of these land owning households owned less than 5 acres of land ie approximately 15 percent of total land. This skewed distribution of ownership and access to productive assets results in direct gain in income to big farmers.
Thus it is highly required that tenants and landless households should be an important focus of both ZTBL and other commercial institutions in order to alleviate poverty in the rural areas. Collateral conditions need to be relaxed for them by evolving a mechanism of non-standard collateral assets in case of landless people. Establishment of micro-finance institutions (MFIs) in the rural areas should be encouraged by easing regulations for setting up these institutions.
Another important variable to understand the anatomy of agriculture credit is its decomposition into farm and non-farm activities. The data regarding agricultural credit advanced by the commercial banks for the year 1995-96 to 2005-06 is given in Table 2:
Table 2
AGRICULTURAL CREDIT ADVANCED BY COMMERCIAL BANKS (FARM & NON-FARM):
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(Rs in million)
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Year Farm Non-Farm Total
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1995-96 5011.40 20.40 5031.80
(99.60%) (0.40%) -
1996-97 4057.70 353.00 4410.70
(92 %) (8 %) -
1997-98 5651.88 1.29 5653.17
(99.97%) (0.03%) -
1998-99 7153.45 20.94 7174.39
(99.70%) (0.30%) -
1999-00 9089.55 99.43 9188.98
(99 %) (1%) -
2000-01 10993.44 942.84 11936.28
(92%) (8 %) -
2001-02 15013.92 2359.22 17373.14
(86 %) (14 %) -
2002-03 17189.77 5406.65 22596.40
(76 %) (24 %) -
2003-04 26109.96 688.05 32991.01
(79 %) (21 %) -
2004-05 42596.62 8327.53 50924.15
(92 %) (8 %) -
2005-06 51905.25 15820.99 67726.24
(77 %) (23 %) -
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SOURCE: STATE BANK OF PAKISTAN, KARACHI: The data shows tabulated in Table 2 that major chunk of loans advanced by the commercial banks is for the purpose of agriculture. In case of non-farm credit, trend is quite erratic and its quantum is very low as compared with farm credit. It is true that agriculture is at the heart of the rural economy but the fact is that majority of the rural poor are either tenants or landless people.
The landless people earn their livelihood by engaging themselves in non-farm activities. Even the small farmers and tenants rely on many activities and other sources of income for earning their livelihoods. Thus, it is imperative that credit is directed towards non-farm activities also as it will help in diversification of the rural economy, which in turn will create employment opportunities for the asset-less and poor households.
Non-farm activities including agricultural products processing, trade, construction and transport services etc need to be accorded priority by the lending institutions as linkages with non-.farm sector are also crucial for agricultural growth.
Item-wise break-up of loans disbursed by ZTBL and other commercial banks shows that the credit was advanced for seed / seedlings, fertilisers, pesticides, dairy farming, poultry farming, for tube-wells and tractors. More than 90 percent of the credit was given under the head of seeds, fertilisers, tractors and pesticides. The proportion of loan supplied to sectors like dairy farming and poultry farming is very low.
In order to diversify agriculture, it is imperative that lending institutions facilitate provision of loans to these sectors as it is only through diversification that agriculture can be a driver of rural development and poverty alleviation.
Besides the above, there is a dire need to reduce effective mark-up rate for agriculture loans. Moreover institutional difficulties in obtaining loans may be reduced by simplifying procedures. According to a Report of Punjab Economic Research Institute (PERI), the difficulties encountered by the farmers are enormous as is evident from Table 3:
TABLE 3:
DIFFICULTIES ENCOUNTERED BY THE GROWERS IN OBTAINING LOANS:
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S. No Items NRSP KB ZTBL PPCBL
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1. Time taken to get a loan (Days) 6.5 21 22 20
2. No of Visits involved 2.1 4.8 11.7 9.5
3. Difficult Procedures (% of Respondents) 3.0 21.0 70.0 54.0
4. Collateral Required (% of Respondents) - - 93.0 66.7
5. Cost of Travelling (Rs) 112 216 503 437
6. Documentation Cost (Rs) 8 12 889 911
7. Illegal Gratification (Rs) - - 602 1247
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