Realizing that whatever is being disbursed by banks in the name of agricultural credits, reaches hardly 15 per cent of the country's farmers, the State Bank is actively engaged with the provincial governments and the representatives of farmers to trigger wider dispersal of rural credit.

A key issue is how to extend and increase credit to small farmers. One important forum where the problem of farm credit is regularly discussed is the central bank's Advisory Committee on Agricultural Credit (ACAC).

In a recent ACAC meeting, it was pointed out that a large number of farmers were not issued pass books by the banks. These farmers lacked property documents on the basis of which banks issue pass books.

Syed Qamaruzzaman, president of the Sindh Chamber of Agriculture confirmed that he received a letter from the State Bank last week on this issue. He said that 400 patwaris were employed in 1999 only for the purpose of regularizing the title documents of small farmers.

'But in the course of time, many of them have joined the regular service in revenue department', he said. Shah Saheb has been attending the ACAC meetings for the last several years.

Such is the power and authority of this grade-five employee called 'tapedar' or 'patwari' who is considered to be the linchpin of the whole revenue system. He is responsible for the primary documentation of the entire revenue records relating to the rights of the individuals, changes in ownership, harvest inspection, and the cropped area estimates.

He is a custodian of revenue records and the record of rights. He carries out the land surveys and land settlements. On the basis of his records and documents, the ownership of a farm or a house in a village is determined and entitles the owner to get a loan from bank.

The big landlords in all the four provinces have formed a nexus with these patwaris and of course with police and other organs of the district establishment to ensure that land ownership records are drawn up on their whims.

No wonder that the Committee on Rural Finance (CRF) formed by the SBP Governor in July 2001, said in its report in 2003 that the 'bigger farmers have hijacked a major share of the loans from Agricultural Development Bank of Pakistan (ADBP) now known as Zarai Tarrqiati Bank Limited (ZTBL) and other commercial\ cooperative banks.'

The committee did not mince words in declaring that the benefit of the subsidized credit from these institutions has gone mainly to the influential farmers. But why is this bias of the banks towards the bigger farmers? It is because of the fact that the banks look for collateral and of course, for the social and political clout.

CRF estimated that percentage of agricultural credit being met in volume terms is as low as 30 per cent and is even much more dismal in terms of coverage of the farmers which comes to hardly 15 per cent.

As much as 70 per cent of the credit needs of the rural areas are met by the informal sector that charges unbelievably high interest rates ranging from 50 to 100 per cent.

A very large number-say almost 85 per cent- of the farmers that do not have any access to the banking sector, depend entirely on the informal sector and end up in a debt bondage.

The acute shortage of credit facility, induces a small segment of rural poor to readily accept the loans even at 20 per cent as offered by the National Rural Support Programme (NRSP)-the recently set up micro finance institution-and the Khushhali Bank.

Investment in agriculture is hardly 0.15 per cent of the GDP'' lamented Shafi Niaz, a former chairman, Pakistan Agricultural Research Council at an international gathering in Islamabad, early this week. .

The 1990 Agricultural Census counted 5.07 million farms in the country. Based on the assumption that 75 per cent of the farm owners are potential clients for credits, the potential customers for the banks are 3.8 million.

Since the bulk of agricultural credit is production loans given for a period of six months, the CRF concluded that a large number of farmers are availing these credit facilities during kharif and rabi seasons.

There is all the possibility of double counting the number of beneficiaries. In final counts, the CRF is convinced that only 577,000 farmers availed bank loan facilities.

Another observation of the CRF was the 'city bias' of the banking. As much as 80 per cent of bank advances go to 'just seven cities'. The villages get a small share of bank loans despite their contribution in deposits.

In three cities--Lahore, Multan and Faisalabad- advances far outstrip deposits. In Lahore-out of the total deposits- advances were 123.40 per cent of the deposits.

For Faisalabad, the percentage was 140.25, while in Multan, it was 128 per cent. Banks distributed over 64 per cent of the total credits just at the twin cities of Karachi and Lahore.

Asserting that such a 'bias' shown towards the urban areas have discouraged the mobilization of savings in our rural areas, the CRF revealed that in the year 2001, there were 3,163 bank branches in the rural areas with a total deposits of Rs159 billion.

In contrast, there were 3,513 branches in the cities with total deposit of Rs582 billion. The per branch average deposit in rural areas comes to Rs50 billion as against Rs165 billion in a city bank branch.

The urban sector utilizes its deposits as well shares with the rural deposits to get advances. As against an average deposit of Rs50 billion in a rural branch, the advance is only Rs6.7 million.

'In the absence of institutional outreach and the saving products specifically designed for rural market, this segment is channelizing its savings into livestock sector,' said the officials of the National Bank of Pakistan adding that a product is being designed to cater to the demands of growing dairy farming sector. The bank also offers another product to introduce drip irrigation.

Disbursement of agricultural loans in 03-04 was over Rs73 billion as against a target of Rs65 billion. Against this year's target of Rs85 billion, Rs34 billion have already been provided in first five months.

But bankers concede that the ratios of loan disbursement in cities and rural areas have not changed much despite a quantum jump in agricultural credit for last few years. For example, the bulk of the consumer loans are going towards cities.

Things have not changed even after the State Bank offered the licences of new banks on the condition that they would set up their head quarter in cities other than Karachi and Lahore. The branch network and advances market remain confine to the cities.

The rural economy is mired in a vicious circle of low growth, low productivity, weak employment generation, rising poverty and abject helplessness. This is the bottom line of the report of the CRF headed by Jehangir Tareen, now a minister of federal industries and production and himself a big landlord from Multan.

The CRF wants the government to set up rural banks in private sector. It refers to the Micro finance Ordinance under which licences can be granted for national, provincial and district banks with different capital requirements.

The Committee recommended that a new fourth tier be added with a capital requirement of Rs125 million for regional licences covering at least three contiguous districts.

The CRF favours a negative list of 20 largest cities to ensure that new banks set up in locations other than these 20 cities should lend for only rural activities. There is also a proposal of giving two to five per cent subsidy on loans to be advanced by the new banks.

The State Bank of Pakistan has been asked to squeeze the available spread in the urban industrial sector to induce commercial banks to start lending to rural sector and also to set up a 'rural finance department'.