July 03, 2006	Monday	Jumadi-ul-Sani 6, 1427

SMALL farmers are 87 per cent of the total community owning about five hectares or less land, across the country. Their number is continuously increasing due to division in land holdings which is also shrinking their incomes. To sustain their livelihood, they are forced either to abandon the profession by selling their lands to big farmers or leave it idle.

Credit is a must for any business, more so for agriculture which traditionally has been a non-monetary activity for the rural population. Its availability can help in breaking the circle of ‘grow-eat-grow’ through adoption of new technologies. Such facility is an integral part to initiate commercialization process in the rural economy, thus boosting farm production.

Cheap and easy credit is required by farmers for the purchase of primary inputs like fertilizer, seed, pesticides, machinery, equipment etc. The rural financial market is composed of two broad segments, i.e., the informal and formal credit sources.

Informal sources are those extending loan in cash or kind, i.e., to friends, relatives, commission agents, input dealers, professional money lenders and the landlords. These are for short period with exorbitant interest rates. These are basically meant to tide over bad periods and are meant for consumption.

Availability of loans is meant for buying seasonal inputs where cash is needed. Informal credit sources are both inadequate and non-dependable as no comprehensive data is available. However, some rough estimates show that such sources are able to meet less than 50 per cent of the total requirements of farm sector.

The mark-up on informal credit is also very high. It varies from product to product and the type of borrower and lender. On an average, the mark-up is estimated to be 25 per cent. In the case of fertilizer, it is 29 per cent while for pesticides at around 35 per cent. The high mark-up on pesticides credit is due to an unholy alliance of manufacturers and traders/dealers. The case studies suggest that pure money lending is on the rise with quite exploitative interest rates ranging from 48 per cent to 120 per cent per year. (Irfan M. et al 1999.2)

Formal credit is being provided through cooperatives, the Zarai Taraqiati Bank Limited (ZTBL), and commercial banks. Credit requirements of the farming community have shown an increasing trend over the past years. The government enhanced the agricultural credit allocation for 2004-05 from Rs65.5 billion to Rs85 billion as compared to 2003-04.

Loans of Rs73.8 billion were disbursed during July-March, 2004-05, as against Rs47.9 billion disbursed during the corresponding period of last year, thus increasing by 54 per cent. Share of the ZTBL in the supply of credit by institutions decreased by 34.1 per cent during July–March, 2004-05 while it was 40.64 per cent during the same period of the preceding year.

The contribution of commercial banks surpassed that of the ZTBL as it was 48 per cent of the total amount disbursed during July–March 2004-05. The share of cooperatives decreased to 7.6 per cent as compared to 10.52 per cent during the same period of last year while of domestic private banks it improved by rising to 10.3 per cent from 3.4 per cent in the corresponding period of last year.

The majority of small farmers are not able to get loans from formal credit institutions. They prefer informal sources and pay high interest rates along with facing some odd consequences, also. The reason may be lack of information or laborious paper work of the institutions. The government must make some policy decisions to provide them cheap credit through formal credit institutions.

Perhaps, they can be helped by introducing lending scheme of zero interest. It might be a good addition in the policies of credit disbursement.