Imtiaz Naich IBA Sindh University

2. AGRICULTURAL CREDIT

3. Group Members
Name Roll No:
Imtiaz Naich
Abdul Salam
Adil Mukhtiar
Zeeshan Magsi
58
244
267
01

4. • The credit needed by farmers to grow the agricultural
sector is termed as Agricultural Credit.
• Credit is required in every type of business and
agriculture is not exception to it. The need for
agricultural credit, however, becomes all the more
important when it moves from traditional agriculture to
modern agriculture.
Agricultural Credit:

5. Agricultural Credit
Agricultural sector is the mainstay of the economy
of Pakistan. It accounts for 25.3% of GDP. It
employees 45.1% of the population directly
engaged in agriculture. Agriculture contributes
about 65% of export earnings. Though agriculture
is an important large industry, yet it is far away
from the availability of financial resources:
Rural credit

6. Ali Nawaz Khan Mahar
Sindh Agriculture MinisterFederal Minister For Agriculture
Yar Muhammad Rind

7. • Agricultural credit is a vital input for leveraging the
financial growth and ultimately leads to economic
growth on sustainable basis. In line with the
government priorities for development of agrarian
economy, State Bank of Pakistan (SBP) has been
striving for engaging the food security challenges in
wake of various initiatives to support the
government’s objectives and goals. During 2013-14
(July-March), the banks have disbursed Rs. 255.7
billion which is 67.3 percent of the annual target of
Rs. 380 billion as compared to last year target of Rs.
315.0 billion. The disbursement is 10.7 percent
higher than Rs. 231.0 billion disbursed during the
corresponding period last year.

8. • Important crops account for 25.24 percent of
agricultural value addition. This sub-sector has
recorded a growth of 3.74 percent compared to a
growth of 1.19 percent last year. The important
crops includes all major crops like wheat, maize,
rice, sugarcane and cotton which registered
growth at 4.44 percent, 7.27 percent,22.79
percent, 4.27 percent and 2.00 percent,
respectively. Other
Source Pakistan Economic Survey 2013-14

9. Difference between Agricultural
Finance and Rural Credit
• There is a difference between agricultural credit and
rural credit. Agricultural credit is linked with the
growth of agriculture; whereas rural finance covers
all the aspects of socio-economic life of rural area. It
covers a wide variety of farm and non-farm
productive activities such as agriculture, animal
husbandry, fisheries forestry, small agro-based
industries as well as development of physical and
social infrastructure in the form of transport and
communication, water and power education and
health etc.

10. Need for Agricultural Credit:
• Credit is required in every type of business and
agriculture is not exception to it. The need for agricultural
credit however becomes all the more impotent when it
moves from traditional agriculture to modern agriculture.
The agricultural sector at present is beset with a number
of handicaps. The land holding is very small. The
population is growing at a fast rate. Agricultural labour is
often underemployed. Production suffers from weather
risks. The capacity of the farmers to save and invest is
very low. The agricultural productivity is low due to low
use of in-puts. The farmers, therefore, need credit to
increase productivity and efficiency in agriculture. This
need is increasing over the years with the rise in use of
fertilizers, mechanization and rise in prices. Briefly the
need for agricultural credit can be summed up as under.

11. The following points reveals the need
for agricultural credit
1. Purchase of new inputs:
The farmers need finance for the purchase of new inputs which
include seeds, fertilizers, pesticides etc. if the seeds of high
yielding varieties and other modern inputs are made available to
the farmers, they can increase productivity not only of the land
but also of labour.
2. Purchase of Implements:
Credit is required by the farmers for the purchase water
pumping sets, tractors, threshers etc. the use of appropriate
machinery in land will increase production by growing more
than one crop on the same piece of land at the same time.

12. 3. Better Management of Risk:
Credit enables the farmers to better to manage the risk of
uncertainties of price. they can borrow money during bad
years and pay back the loans during good years of crops.
4. Permanent Improvement in Land:
Credit also helps the farmers to make permanent
improvements in land like sinking of wells, land reclamation,
etc.
5. Better marketing of Products:
if timely credit is available to the farmers, they will not sell the
produce immediately after the harvest is over. At that time the
prices of agricultural goods are low in the market. Credit
enables the farmers to withhold the agricultural surplus and
sell it in the market when prices are high.

13. 6. To Face Crisis:
The credit is required by the farmers to face crisis. The crisis can be caused
by the failure of crop, draught or floods etc.
7. Purchase of Cattle:
The farmer needs credit to purchase cattle. Because the farmers mostly
remain free after cultivating the farm, therefore they want to start off-farm
business by purchasing cattle.
8. Payment of ancestor’s Debt:
Most of the farmers remain in debt due to their ancestors. Therefore to
retire the ancestors debt, the farmers take loan from banks and other
sources.
9. Consumption Expenditures:
the farmers need loans for getting married their children etc on which they
spend a lot.
10. Civil and Criminal Suits:
in order to civil and criminal suits, farmers need credit.

14. Agriculture requires the following three types of credit.
1. Short-term Credit:
The short-term credit ranges upto one year. The farmers need short-term
credit for meeting the working capital requirements of agriculture. For
instance, they need short-term credit for the purchase of seeds, fertilizers,
pesticides, bullocks and other casual expenses. The short-term credit is
repaid after marketing the produce of the next crop.
2. Medium-Term Credit:
Medium-term Credit extends from 1 to 5 years. The farmers require
medium-term credit for the purchase of cattle, purchase of implements,
improvement in water course. The loan is obtained on the security of
movable or immovable wealth of the farmers.
Types of Agricultural Credit:

15. 3. Long-Term Credit:
The duration of long-term credit exceeds 5
years. The farmers need long-term credit for
making improvement of permanent nature in
land such as sinking of tube wells, purchase of
machinery and implements etc.

16. • Credit in the farm sector is available from two sources
1. Non-Institutional Sources
2. Institutional Sources
Sources Of Agricultural Credit

17. 1. The major non-institutional sources of farm credit are
1. Money lenders
2. Friends
3. Relatives
4. Landlords
5. Shopkeepers
6. Commission agents
The Money Lenders, mostly nonmuslims were the main suppliers of loans to
the farmers. However, their importance has decreased to a great extent now
and the short-term credit needs of the farmers are met from commission
agents, friends and relatives which supply roughly 50% of total rural
borrowings.
The commission agents advance loans to the farmers for short-period. They
force the farmers to sell the produce to them which generally is purchased at
low rates.
1 . Non-institutional Sources of Credit:

18. The lenders of the informal sources (friends, relatives etc) have certain
advantages over the formal credit sources.
• The informal lenders usually know the borrowers personally.
• They require little security for advancing loans
• The loans are provided for consumption as well as production purposes.
• The lenders are approachable at all times.
• They are also lenient in rescheduling loans.

19. The major institutional sources of farm credit are
a. Agricultural Development Bank
b. Commercial Banks
c. Taccavi Loans
a. Agricultural Development Bank:
the agricultural development bank is an important source for
the supply of credit to agricultural sector. This bank provides short,
medium and long term loans for farm and off-farm activities. The bank
has the following windows
i. Development Loans
ii. Production Loans
iii. Agri-business Loans
iv. Off-farm income generative activities loans.
2 . Institutional Sources of Credit:

20. b. Commercial Banks:
commercial banks are providing loans to the farmers for meeting
their short and medium term requirements. The loans are advanced
to the farmers against the security of land, crop, fixed assets and
even on personal security.
c. Taccavi Loans:
Taccavi loans are handled by the Provincial Revenue
Department. Necessary funds are allocated for different areas each
year in the provincial budgets. The Taccavi loans are primarily given to
the farmers for meeting emergencies such as flood, earthquake, famine
etc. the farmers take these advances in the spirit of gift or relief given in
calamity and are not serious in repaying them.

21. 5 Big
Commercial
Banks
188.0 133.5 71.0 52.2
ZTBL 69.5 45.9 66.0 17.9
PPCBL 10.0 5.4 54.4 2.1
14 DPBs 90.4 54.2 59.9 21.2
7 MFBs 21.6 16.2 75.1 6.3
3 Islamic
Banks*
0.5 0.5 94.6 0.2
Total 380.0 255.7 67.3 100
Banks
Target
2013-14
2013-14 ( July-March )
Flow
% age
Achieved
% Share in Total
Source “ State Bank of Pakistan “ ( 2013-14 )

22. Credit Disbursement to Farm and
Non-Farm Sector
• The continued increase in non-farm lending may be
attributed as an outcome of SBP’s successive pilot project
in selected districts across the country to encourage banks
to diversify their agriculture credit portfolio. Sector-wise
classification reveals that the share of non-farm sector in
the overall agriculture credit disbursement has continued
to increase by disbursing Rs.116.7 billion or 45.6 percent
from Rs.99.7 billion or 43.2 percent during
corresponding period last year. The share of farm sector in
overall disbursement remained slightly lower from 56.8
percent to 54.4 percent ; however ,in terms of amount
Rs.7.7 billion grew in farm sector from Rs. 13.3 billion to
Rs.1.39.0 billion during the period under review . The
comparison of farm and non-farm sector share is shown in
below Table.

23. Credit Disbursement to Farm & Non-
Farm Sector
A Farm Credit 139.0 54.4
1 Subsistence Holding 80.6 31.5
2 Economic Holding 35.5 13.9
3 Above Economic Holding 23.0 9.0
B Non-Farm Credit 116.7 45.6
1 Small Farms 39.4 33.7
2 Large Farms 77.4 66.3
Total ( A+B ) 255.7 100.0
Disbursement % Share in Total
2013-14 ( July-March )Sector
Source State Bank Of Pakistan

24. The shortage of rural credit both in quantitative and qualitative terms
continues to be a limiting factor in the modernization and growth of
production in agriculture. The major problems which are being met by
the farmers in the receipts of agricultural credit from the institutional
sources are summarized below:
1. Less Flow of Credit to Small Farmers:
There are millions of small farmers throughout the country. The
gain has reached more to the big landlords. It is therefore, an
urgent need that the credit should reach the small farmers who are
the backbone of agricultural industry.
2. Complicated Procedure for Advancing Loans:
the procedure for advancing loans by institutional sources is quite
complicated. The loans are advanced to the farmers on the basis of
pass books which contain the details of land owned by the farmers.
The procedure is quite complicated.
Problems Of Agricultural Credit

25. 3. Delay in the disbursement of Credit:
the procedure involved for advancing loans to the farmers is
cumbersome. Who-so-ever succeeds in completing the documents
is entitled to receive loans. It has been observed that the
disbursement of credit is delayed even after it has been approved.
It is a serious problem which the farmers are facing these days.
4. High Interest Rate:
The interest charted by the various institutions on farm credit is
high. The low income farmers can not bear it. As regards the
interest-free loans, they are not reaching the small deserving
farmers.
5. Amount of bad debts is increasing:
The loans advanced particularly to the big landlords are not being
repaid to the institutions. Since the big landlords have political
influence, they, therefore, manage to get them written off.

26. • The credit agencies mostly do not take the risk of advancing loans to the
farmers because heavy rains and droughts etc can destroy the crops and
thus the repayment of loans may become difficult for the farmers.
• Due to unstable prices of the agricultural products, there is instability in the
income of the agriculturalists. The credit institutions, therefore, hesitate to
finance the farmers.
• Most of the agriculturists who live on subsistence farm units do not have the
adequate information of the credit institutions which supply loans to the
farmers.
• The villagers do not know how to keep the records of the loans which is a
necessary element of proper credit analysis.

27. • The Government of Pakistan has taken the following
measures for solving the problems of rural credit in the
country.
• 1. Establishment of Zarai Taraqiate Bank Limited
(ZTBL). The ZTBL was established in 1961 through the
merger of ADFC and ABP . The ZTBL provides rural credit
to the farmers through 49 regional offices. 343 branches
and 1459 credit mobile officers (MCOs). Each mobile
credit officer (MCOs) in the Supervised Credit Scheme of
the Bank is in charge of 10 to 15 villages. The ZTBL
advances loans on the vases of land mortgage or on
personal security. Though the operation of ZTBL has
reached 38500 villages out of 45000 yet the number of
farmers availing of loan facilities particularly the small
garners is small. The ZTBL disbursed 33% of the total loan
to agriculture sector in 2006-07.
Measures taken by the Government
to solve these problems

28. 2. Role of commercial banks
The commercial banks were inducted in the field
of rural credit under Banking Reforms Act of
1972. The banks provide loans to the farmers for
meeting their short-term and medium term
requirements. These requirements include
purchase of inputs, cattle dairy farming rural
gardening installation of tube-wells, etc. The
commercial banks advance loans both under the
Supervised Credit Schemes and outside the
Supervised Credit Scheme. The share of
commercial banks has surpassed the share of
ZTBL and was 49% in the year 2006-07.

29. Cost Free Production loans
• The commercial banks are also advancing cost
free production loans farmers. These loans are
generally in kind and are given for seeds,
fertilizers, pesticides, land sprayers. There is a
complaint that deserving farmers are not
benefiting from these loans. There is a large
scale misuse of funds through proxy loaning.

30. 3. Role of cooperatives
• The provincial cooperative banks and the
cooperative societies are providing loans to the
small farmers at low mark up. With the winding
up of Federal Cooperative Bank in 2000, the
provision of credit to agricultural sector has
received a set back. The share of cooperatives
in the total agriculture credit was
only 5% in 2006-07.

31. 4. Taccavi loans
• Taccavi loans are handled by the Provincial
Revenue Departments. Necessary funds are
allocated for different areas in the provincial
budgets. Taccavi loans are given to the farmers
at the time of calamity such as floods,
destruction of crops due to scanty rains, bad
harvests, etc.

32. 5. Role of State Bank in
agricultural financing
• The SBP is playing an active role in improving the
quantitative and qualitative targets of rural credit, briefly.
• (i) Agricultural Credit Department was set up
in 1956 for research and assessment of credit needs.
• (ii) The SBP introduced Refinance and guarantee
scheme in 1970. The Bank under this scheme
bears 50% losses on loans advanced to agriculture.
• (iii) In order to increase the share of commercial banks
in the rural credit. a Mandatory Credit Target Scheme
was introduced in 1972.
• (iv) The Interest-Free Production Loans Scheme was
introduced in 1976 by SBP.
• (v) A share of 75% of loans has been allocated to small
farmers holding land up to 25 acres.

33. The following measures if taken can solve the problem of the flow
of agriculture credit to the needy farmers:
1. The procedure for getting loans should be made easy.
2. The commercial banks operating in government sector should
provide loans to the farmers on low interest rate and without
any mortgage.
3. The provincial Govt. should allocate more funds for
agriculture development as Taccavi Loans.
Remedial Measures

34. 4. There is a need for establishment of Agriculture
development Bank and its various branches
through out the country.
5. The Availability of Agricultural Credit should be
advertised to the agriculturalists.
6. There is greater need for agricultural price policy
which stabilizes the prices of agri. products i.e. the
income of the farmers. Hence the banks will agree
to provide them loans due to stable prices.
Remedial Measures for agri. Credit, continued