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Agricultural credit through commercial banks.

In the wide interest of agricultural development for helping the peasantry of Pakistan, specially the small holders of land, the existing coverage of institutional credit was full of shortfalls and shortcomings. In view of expanding the flow of institutional credit, its widespread disbursement was considered effective through commercial banks which had easy reach to the small villagers through their branches, opened in every nook and corner of the country. The Banking Reforms of 1972, inducted the commercial banks of the country in providing the credit facilities to the farmers with great stress to look after the interest of small farmers.

Although the nature and type of commercial banks lending policies herein before related to the progress of commerce, business, industry and other non farm activities, they accepted new challenge and started performing their new assignment of extending their hand of help of the farming community for the sake of boosting agricultural production and bringing home prosperity for the neglected section of rural community, with great enthusiasm and success. For the attainment of such national objective through the Bank's Nationalisation Act 1974, all the private banks within the country were nationalised and banking council was set up to run the smooth administration of all the nationalised banks. Under act, five banks were introduced:

(a) The National Bank of Pakistan,

(b) The Habib Bank Limited,

(c) The Muslim Commercial Bank Limited,

(d) The United Bank Limited and

(e) The Allied Bank Limited.

Under the scheme of Agricultural loans by Commercial Banks introduced since December 1, 1972, advances are given for the purpose of meeting the needs of production as well as development of land, against a charge/mortgage over borrower's agricultural land. Loans are advanced against two sureties and the security of pass book which has simplified the documentation, requirements of the farmers and eased the procedure of getting loans in an appropriate time. To avoid the misuse, the credit is given in majority of cases in kind. The loan applications against the security of a pass book are processed and sanctioned within seven days of their receipt.

The banks are encouraged and protected against the possible risk of recovery under the credit guarantee scheme which allows them 50 per cent refund of bonafide losses in case of default in the repayment of disbursed mandatory targets of credit from the State Bank of Pakistan. All commercial banks have been made bound to achieve the mandatory targets of credit allocated to them by National Credit Consultative Council (NCCC) under the advice of the Agricultural Advisory Committee each year. A penalty in the amount of the shortfalls is imposed on the defaulting bank or which does not disburse the targeted amount to the farmers.

Agricultural credit was provided by all the nationalised commercial banks with the fullest stress and tempo during 1970s and 1980s. But after the beginning of 1990s, the tempo of disbursement of agricultural loans by these banks has reduced to a lower level with the least stress and zeal on account of the privatisation of two banks i.e Muslim Commercial Bank and Allied Bank of Pakistan. There is also apathy of policies which attach lesser importance and stress to the provision of agricultural loans by these banks. It is also another factor of slow disbursement of agricultural loans by other nationalized commercial banks except the National Bank of Pakistan for which we read daily about their privatisation. These banks which are under the target of privatisation are the United Bank Ltd., and the Habib Bank Limited. On account of their such uncertain status, these two banks have also loosened their chains in the field of the disbursement of agricultural loans to the agriculturists with the result that the farming community has been suffering from financial constraints during the cropping seasons. The fact is proved by the performance of all commercial banks whose agricultural loan portfolio has reduced from Rs. 5,275 million disbursed during 1992-93 to Rs.4,608 million during 1994-95.

The percentage share of commercial banks to the total agricultural loan portfolio disbursed by all institutions has also come down from 31 per cent during 1992-93 to only 20 per cent during 1994-95 which should because of great confusion, hardship, worries and woes for the farming community. This less attention, tempo. Interest and importance to this main sector of economy will reduce the production capacity of all agricultural crops in the coming years and there will be shortage of every commodity in the markets because lesser use of inputs will be the cause of lesser per-acre yield of every crop. The following, suggestions may be considered for the redressal of the problems faced by the farming community.

1) The 1970s tempo of the disbursement of agricultural loans may be revived by introducing interest free loans on surety basis as well as through pass book system.

2) All the commercial banks both nationalised and privatised may be given targets to provide production loans only to the bonafide farmers upto Rs.2 million,

3) The defaulting banks may be penalized for not meeting the mandatory targets with no lenient views.

4) There should be separate mandatory targets for all commercial banks for farm and non-farm sector i.e. (poultry, fisheries, livestock, orchards etc.).

5) Separate windows may be set up for agricultural loans at every branch of commercial banks.

6) There should be tight checking to oversee the performance of these banks as to whether they are providing agricultural loans to the proper farmers and for the proper purposes.

7) The supervision of agricultural loans may be for proper utilisation of these loans by having contacts with the farmers in the fields.

8) All banks may be allocated to disburse loans crop-wise and not area-wise throughout Pakistan as follows:

* NBP for sugarcane purpose;

* HBL for rice;

* UBL for wheat;

* MCB for maize, barley, jowar and all kinds of pulses; and

* ABL for orchards and all vegetables.

9) They should not disburse loans for all non-farm purposes like poultry, fisheries, livestock etc.

10) All commercial banks should have a separate department of agricultural loans/credit in their head offices. The staff recruited for this purpose may be agricultural-based and they may be provided all chances of their promotions, elevation, incentives in their departments.

11) All commercial banks should quarterly report about their progress/performance to the vigilance division of State Bank of Pakistan.

12) State Bank should set up a vigilance division to supervise the agricultural credit portfolio also.

13) All farmers should lodge their complaints with the State Bank of Pakistan for the redressal of their genuine problems.

14) The State Bank of Pakistan should conduct surveys and prepare reports so that any trouble/irregularity at the part of banks can be checked and looked into for streamlining the system.
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Author:Dhakan, Ali Akbar M.
Publication:Economic Review
Date:Apr 1, 1997
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