Farm credit lag

Post Source: Dawn economic & business review

By Rauf Nizamani

AGRICULTURE the mainstay of Sindh’s rural economy, is underserved by the banking sector. Credit plays an important role in increasing farm productivity, but the province, due to various reasons, lags behind in benefiting from bank facility. Of the total Rs260 billion allocated for agriculture credit for the country in fiscal year 2010-11, 11.11 per cent has been earmarked for Sindh, 86 for Punjab, 2.61 for NWFP and 0.28 per cent for Balochistan. However, there has been no marked improvement in the availability of this facility in Sindh despite numerous efforts including one-window operation and mobile credit service.

The farm credit in the province during July-December 2010 increased by only six per cent over the same period of the previous year. However, it significantly fell short of the target as the disbursed credit amounted to Rs11.8 billion against the target of Rs36 billion. Similarly farm credit inflow into the province in the half of last year was Rs9 billion or 26 per cent of the target of Rs35 billion.

An agricultural survey carried out in Sukkur district recently revealed that 52 per cent of the farmers had no bank account. Only five per cent of them had obtained loans from banks, whereas 54 per cent had taken loans from informal sources including friends and family, input suppliers and arthies.

About 89.6 per cent of the respondent had no information about the various bank products. About 71.5 per cent of the respondents considered interest-based financial products against Shariah and refused to avail the facility. About 85 per cent of farmers, who had taken loans/credit from input suppliers, were obligated to sell their produce to suppliers.

The growers blame low utilisation of farm credit in Sindh to non-cooperation of revenue officials and commercial banks and corruption in loan processing. A large number of growers’ land records and passbooks have not been updated. The farm credit off-take is also hindered due to various problems relating to land record. The lack of computerisation of land record is a big hurdle in the maximisation of agriculture credit.

A few years back, the provincial government had decided to computerise land records. However, nothing has been done so far in this regard. Some time ago the Sindh High Court had ordered that no transaction should be carried out by any bank until the land record was computerised within three months’ time. But this did not happen.

Besides, banks are reluctant in sanctioning loans especially to small farmers. And if they at all approve small loans, those carry exorbitant mark-up in some cases up to 25-30 per cent. There are also complaints that once the loan is sanctioned, the bank officials compel the growers to pay 20-25 per cent mark-up, which is deducted before the amount of loan is deposited in grower’s bank account. Thus the growers get only 75-80 per cent of the sanctioned loan.

In addition to this, commercial banks take more than two months to process loan applications which delays sowing and results in low crop yield. There is a need to simplify the process, so that growers may apply for bank loan instead of going to traders for borrowing money which though high in mark-up rate is easier and quick to obtain.

Another reason for low disbursement of bank credit is that banks make farm loans mostly against recoveries. As recoveries in Sindh have slowed down due to water shortage and other reasons, the disbursement of loans has slowed.

The central bank believes that agricultural credit in Punjab, the NWFP and Balochistan have shown a positive performance while in Sindh it remains sluggish. It has emphasised that improved role of provincial revenue department and computerisation of land records can help maximise disbursement of farm credit

The State Bank governor has also strongly advised the provincial governments to manage speedy issuance of passbooks to farmers to enable them to avail bank credit. He has especially asked the Sindh government to resolve the issue on priority basis. Some bank officials are of the view that even if 50 per cent of the land records are updated, the credit to agriculture in Sindh will rise..

The concerned department in Sindh says it is trying to resolve the issue on a priority basis but so far no tangible result has been achieved.

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