SMALL farmers have very limited access to agriculture credit in Khyber Pakhtunkhwa. The worst-hit are the growers in the far-flung hilly and tribal areas. They continue to rely on informal sector for their needs for credit that keeps them in a vicious debt-cycle and poverty trap.

The province accounts for only around four per cent of national agriculture credit disbursement. Whereas only six per cent of farmers in the province have access to agriculture credit against 21 per cent for the country.

Various easy credit schemes, support price mechanism and subsidy regimes in the past were designed for small and medium size farmers, but only big landlords ended up as its beneficiaries.

Small farmers got a raw deal in the existing 2005 agriculture policy as they could not provide collaterals for loans. Long credit approval and disbursement process, high mark-up and fewer lending branches are responsible for low agriculture credit in KP.

“The formalities for any agriculture loan require lengthy documentation that take around two to four months to complete,” said a bank manager when asked on the process of lending farm loans.

He suggested that small farmers should be given loans on personal guarantees. Group-based credit schemes are being followed by small banks but need to be taken up by main banks to improve credit disbursement ratio. Crop as well as life insurance is the best way to minimise the risk of farming community against losses and of banks against non-repayment.

Shahid Khan, a Mardan-based farmer, held banks responsible for low level of agriculture credit in the province.

“The banks avoid lending to farmers for fear of default. Much has been said about one-window operation but no bank has as yet come out with a fast track mechanism for credit disbursement. The banks must simplify their agriculture loaning system. Mobile credit officers should reach farmers at their doorsteps for credit delivery,” he said.

Last year, the government had promised Rs1 billion seed money for easy farm and non-farm loans to small farmers from bank but only Rs200 million was released. This year too, only Rs400 million was expected.

A borrower can avail a maximum unsecured financing up to Rs500,000 from banks as per prudential regulations. Also, under the revolving credit scheme, banks provide finance for farming on the basis of revolving limits for a period of three years with one-time documentation.

Borrowers are required to clear the entire amount of loan (including markup) in the agreed time. Agricultural credit under the scheme can be availed against personal surety but it is seldom allowed.

Under agricultural passbook system, banks are bound to allocate 70 per cent of their loans to subsistence farmers.

Globally, various innovative lending techniques like group based lending (the Grameen model), self-help groups (Indian model), solidarity group (Latin America model), community based organisation (also called village banking) have been successfully applied, which have made lending affordable and easily accessible to small farmers, helping them to improve farm productivity.

In group-based lending, small groups of farmers are formed by lenders involving 5-10 members having identical needs. Collateral is generally not required and a joint liability agreement/undertaking takes its place wherein each member takes the responsibility of the outstanding debt of all group members. In case of any change in the group, a fresh guarantee is signed by the members.

A group coordinator acts as a facilitator of the group and agent of the bank. The bank ensures that group coordinator is executing the assigned tasks as prescribed like liaison with members, arrangement of meetings, etc. and if need be replace him, with consensus, in case he fails to deliver.

Group members ensure that the bank receives timely repayments from the borrowers. If a borrower dies, liability lies with the remaining group members. However, life insurance could safeguard the interests of both the borrowers and lenders.

Eligibility criteria for borrowers are: not more than 12.5 acres land (tenant or lessee) or 40 sheep, computerised national identity card, residence in the village and membership in the village organisation. The minimum credit limit is Rs20,000 and maximum Rs200,000.

Farm loans are repayable as per production cycle of crops. For non-crop activities like livestock farming, repayment period is three to five years.