1. RURAL CREDIT
Agricultural sector is the mainstay of the economy of Pakistan. It accounts for 21% of GDP. It employes 43.4% of the population directly engaged in agriculture. Agriculture contributes about 65% of export earnings. Though agriculture is an important large industry, yet it is far away from the availability of financial resources:
Difference between Agricultural Finance and Rural Credit.
There is a difference between agricultural credit and rural credit. Agricultural credit is linked with the growth of agriculture; whereas rural finance covers all the aspects of socio-economic life of rural area. It covers a wide variety of farm and non-farm productive activities such as agriculture, animal husbandry, fisheries forestry, small agro-based industries as well as development of physical and social infrastructure in the form of transport and communication, water and power education and health etc.
NEED FOR AGRICULTURAL CREDIT
Credit is required in every type of business and agriculture is not exception to it. The need for agricultural credit however becomes all the more impotent when it moves from traditional agriculture to modern agriculture. The agricultural sector at present is beset with a number of handicaps. The land holding is very small. The population is growing at a fast rate. Agricultural labour is often underemployed. Production suffers from weather risks. The capacity of the farmers to save and invest is very low. The agricultural productivity is low due to low use of in-puts. The farmers, therefore, need credit to increase productivity and efficiency in agriculture. This need is increasing over the years with the rise in use of fertilizers, mechanization and rise in prices. Briefly the need for agricultural credit can be summed up as under.
(1) Purchase of new inputs. The farmers need finance for the purchase of new inputs which include seeds, fertilizers, pesticides, irrigation water etc. If the seeds of high yielding varieties and other modern inputs are made available to the farmers, they can increase productivity not only of land but also of labour.
(2) Purchase of implements. Credit is required by the farmers for the purchase of cattle water pumping sets, tractors threshers etc. The use of appropriate machinery in land will increase production by growing more than one crop on the same piece of land at the same time.
(3) Better management of risks. Credit enables the farmers to better manage the risks of uncertainties of price, weather etc. They can borrow money during bad years and pay back the loans during goods years of crops.
(4) Permanent improvements in land. Credit also helps the farmers to make permanent improvements in land like sinking of wells, land reclamation, horticulture etc.
(5) Better marketing of products. If timely credit is available to the farmers, they will not sell the produce immediately after the harvest is over. At that time the prices of agricultural goods are low in the market. Credit enables the farmers to withhold the agricultural surplus and sell it in market when price are high.
(6) To face crisis. The credit is required by the farmers to face crisis. The crisis can be caused by the failure of crop, draught or floods.
(7) Balanced development. Agricultural sector generally remains neglected compared to industrial sector in the country. For balanced development, it is essential that credit should be provided at confessional rates to the agricultural sector so that it should also expand and help in the take off process of the country.
TYPES OF AGRICULTURAL CREDIT
Agriculture requires the following three types of credit; (1) Short-term credit, (2) Medium-term credit and (3) Long term credit.
1. Short-term credit. The short-term credit ranges up to year. The farmers need short term credit for meeting the working capital requirements of agriculture. For instance, they need short-term credit for the purchase of seeds, fertilizers, pesticides, bullocks and other casual expenses. Sometimes short term credit is also raised for paying rents, revenue and also meeting the financial requirements of the family. The short term credit is repaid after marketing the produce of the next crop.
2. Medium term credit. The medium term loan extends from 1 to 5 years. The farmers require medium term credit for the purchase of cattle, purchase of implements, improvement in water course. The loan is obtained on the security of movable immovable wealth of the farmers.
3. Long-term credit. The duration of long term credit exceeds five years. The farmers need long term credit for making improvement of permanent nature in land, such as sinking of tube wells, reclamation of land and building purchase of machinery and implements etc.