Agriculture credit.

Agriculture credit ,its roles, its types Its importance ,Its impact, institutions of agriculture credit..

LANDUSE PAKISTAN STATISTICS 20082009 ( million hectares )

Total Cultivable Area Total Cultivated Area Total Irrigated Area Cultivable Area Left uncultivated

29.410 21.210 19.490 8.200

What is credit?
Permission to use another's capital. (john Stuart Mill ) The power to obtain goods or services by giving a promise to pay---------- at a specified date in the future. (Joseph French Johnson) One of the most widely published definitions is that Credit is a present right to future payment. Credit is derived from the Latin word CREDITUM meaning TRUST. So credit is a trust and credit without trust is unthinkable.

Agriculture credit/finance
Agriculture credit is the financing for agriculture related activities qInput supply qProduction qProcessing qMarketing

Agriculture credit market in Pakistan

Formal providers of credit

Informal providers of credit

Under formal lenders are q Specialized banks Zarai Taraqiati Bank Limited (ZTBL) Punjab Provincial Cooperative Bank Limited(PPCBL) q Commercial banks ABL HBL MCB NBP UBL

They comprise of qillegal money lenders qFriends qRelatives qShop keepers qCommission agents

Informal credit market

Informal credit market is characterized by Low transaction cost Very high interest rates Rapid disbursement of credit

Still a major source of credit in the country

Historical back ground of agriculture credit institutions of Pakistan

qIn 1950s Two specialized institutions Agricultural development finance cooperation and Agricultural bank were established qin 1961 both these institutions were merged to form agricultural development bank of Pakistan (ADBP) now called ZTBL qPrior to 1972 commercials loan share in agriculture was nominal while bulk of the credit to this sector was provided by ADBP qIn 1972 banking reforms were made and SBP started assigning mandatory agriculture credit targets to the five big banks

Punjab provincial cooperative banks

q In 1976 federal bank for cooperatives (FDC) was established to finance provincial cooperative banks for further lending to cooperative societies q As a result provincial cooperative banks were formed to provide agriculture credit at grass root level and to encourage the cooperative societies q The system did not achieve its goals due to 1.default of provincial cooperative banks 2.A number of fake cooperative societies q in 2001 federal bank for credit (FDC) was liquidated and financing to PPCBL was given to SBP

Importance of agriculture credit

q Availability of agriculture credit is a pre requisite for 1.Enhancing productivity 2.Improving standard of living of small farmers qFarmers utilize the credit facility to meet short term credit needs mostly for the purchase of inputs qFarmers also avail opportunities to transform their lands into mechanized farming units to reduce cost and increase profitability

Role of SBP in agricultural credit

qSBP is creating an environment for banks to adopt agriculture finance as a viable business qSome major initiatives taken by the SBP are 1.Inducted 14 domestic private banks into agriculture credit scheme apart from 7 banks (5 major and 2 specialized ) 2.Guidelines for livestock, fisheries, poultry and horticulture financing have been issued to diversify bank credit to non-form sector activities 3.SBP has introduced three year revolving credit scheme, with one time documentation and automatic renewal on annual cleanup of principal + markup for production loans to

ECONOMIC IMPORTANCE OF AGRICULTURE

Agriculture sector is the largest sector of Pakistans economy. Its contribution to GDP is 21 %
Agriculture Manufacturing &mining Trade Public Administration & Defence

21.8% 19.6% 17.3% 5.7% 13.7% 10.6% 11.3%

Transport, Storage & communications Services Others

It is also the major source of the total labor force of the country i.e

Agriculture Manufacturing & mining Trade Construction Others

44.7% 13.1% 14.6% 6.3% 21.3%

Types of agricultural credit

Agricultural credit / Financing can be classified into following three categories (1) Sector-wise
(a)

Farm credit (b) Non-Farm credit

(2)Tem-wise
(a)

Short-term (b)Medium- term (c)Long-term

up to 2 years up to 5 years above 5 years

(3)Purpose-wise
(a)Production loans (b)Development loans

Some details of farm and non-farm credit

Farm credit
It

is extended for the purpose of production of crops to meet working capital expenses and development of agri.land Financing for
crop inputs ,tractors/well, Farm machinery Land improvement

Non-Farm credit
It

is extended for

Financing of Livestock (Cows.Buffaloes,Goats and Sheep) Poultry-farming (Broiler,Layer and hatchery) Fisheries (Inland and marine) Forestry

Some details of production and development loans

Production Loans They include loans for inputs like
Seeds Fertilizers Weedicides Herbicides Labour

charges Water rates Vegetables floriculture

Development Loans They include loans for capital items like Tractors Attachments/Implime nt Installation of T/well Improvement of agri.land Construction of godowns Orchard plantation

ACAC
It stands for Agriculture Credit Advisory committee. It was setup in 1972 to assess credit requirements of agricultural sector in order to assist NCC in the preparation of credit plan and to consider the ways and means for improving disbursement and recovery of agricultural credit together with suggesting measures for strengthening of institutional framework of agricultural credit. The Governor State Bank of Pakistan is the chairman of this committee. It consists of members from Federal/provincial Governments, Banks and chambers of Agriculture/farmers associations.

Systems of agricultural credit supervised agricultural credit scheme

It

is a system of providing Agri.credit ) Latest technology ) providing at the doorstep of Supervision/guidance ) the farmers through MCO
It

was introduced in1979. It covers the entire Pakistan which covers 458 Tehsils. In addition to five major banks and two specialized istitutions.13 domestic private banks are also participating in supervised agri.credit scheme. All categories of farmers in Pakistan(owners

Important elements of supervised agri.credit system

The important elements of Supervised credit system are Provide adequate credit according to bonafide needs of the farmer at his door step Extend supplies and services. Assist in production planning and implementation. Transmit appropriate modern technology for viable and productive schemes and their effective supervision to ensure repayment out of increased earnings.

Procedure to avail agri. credit

There are two system to avail agricultural credit ( 1) Loans under Agricultural Pass Book System
It

was introduced by federal Govt. in 1973 on the basis of PIUS In1987,this system was further amended to provide for assessment of value of land on the market price in addition to PIUS.

(2) Loans Under Outside Pass Book System

Salient features of agri.pass book system

The printing and selling of APB is arranged by Pakistan Postal Services Corporation as prescribed in LACIP Act.1973 Its cost is Rs.20/-and they are bound in red and green covers. The fee for preparation and completion of the APB are to be paid in the form of court fee stamps at following rates

In case of land owners having land not exceeding Rs.5 subsistence holding In case of land owners having land exceeding Rs10 Subsistence holding but not exceeding economic holding In case of land owners above economic holding

Salient features of agri.pass book system (Continued)

APB is prepared by Halqa patwari and is finally issued by Revenue Officer. APB contains all the entries of Register haqdaran-e_zamin of respective farmer. Loans up to 80% of the total value of PIUS @Rs.2000/-PIUS or on the basis market value of land as per option of the farmer. Rate of Mark-up on agri.credit is different by banks. The cheapest rate of Mark-up is 8-9 % by ZTBL.

various systems of profit on agri.credit

There are different modes for financing various types of disbursements under Islamic Banking System since 1985. They are
Mark-up Hire-purchase Lease-financing Buy-Back Service

charges NOTE; but for the sake of uniformity , only one mode of financing i.e. is being adopted.

What is mark-up mode of finance

It is defined as
Sale

in which the margin of profit is mutually agreed upon between the buyer and seller and agreed price of the item involved is payable on a deferred basis either in lump sum or in installment

Per acre credit limit of major agri. crops

Name of crop RICE(PADDY) COTTON WHEAT SUGARCANE CITRUS ORCHARD MAIZE

Per acre limit Rs.19000/ Rs.21000/ Rs.16000/ Rs.30000/ Rs.33000/ Rs.20000/

Detailed break up (inputs)per acre agri. credit limit

Crop Seed Rice 1244 Wheat 1254 Cotton 1511 S/Cane 5746 Maize 2946 Citrus 4486 Orchard Fert. Pest. 5760 1986 5908 1151 5185 5233 10155 2534 6267 2167 7165 4483 Trac. Exp. 2205 2036 2115 2653 2528 2517 Lab. T/W Other Charg Wat. charges 2859 3764 1181 es 2071 charg 1300 2280 2669 es 2259 2028 3719 3697 1497 2708 2278 1106 6536 3750 3750

Agri. Revolving credit scheme

I t is a running finance from the banks on the basis of multiple crops, which becomes revolving limit, for the period of three years in single disbursement

There is no limit of land holding. Revolving limit can be renewed against 100% adjustment/repayment of previous loans without fresh documentation. There is no loan application fee at the time of renewal.

One window operation

It is also called ZARKHAIZ /AWAMI ZARI SCHEME. It has played a significant role in meeting the production credit needs of small farmers timely/ satisfactorily. This is a sort of credit availability to the farmers at their door step. This enables them to purchase the required good quality inputs The farmers can avail loan for three years with one time documentation. It is carried out on every Monday Farmers up to land of 25 acres eligible for this scheme. Max. loan limit is Rs..200M. L.A. Form are supplied free of cost At focal point MCO receives loan application and process it after checking RR.