Micro finance for agriculture would also facilitate growth in employment and output

June 30 - July 06, 2003



Like many other developing countries where 45 to 80 per cent of the population derives its livelihood, agriculture is the key-determining sector in the economy of Pakistan. Contribution of agriculture to GDP in 2000-2001 was 24.6 per cent and in 2001-2002 it has declined to 24.1 per cent. Size of land holding in Pakistan is very small and has decreased over time. According to Agricultural Census, there are 5.1 million farms in the country and 93 per cent of these are small and marginal farms accounting for 60 per cent of the total cultivated area. The large farms are only 7 per cent of the total farms accounting for 40 per cent of the total cultivated area. There has been further subdivision of farms because of inheritance and transfer. Since land in agriculture production process is natural agent, therefore decreasing size of holding has detrimental effect on investment, farm productivity and farm income resulting in 52 per cent poor Pakistanis.

Over the last one decade, agriculture grew at an annual average rate of 4.5 per cent. This low growth rate is attributed to poor weather conditions and pest attack on crops. Agriculture has also been suffering from various problems. Such as traditional methods of farming, low yields, shortage of key inputs (credit, fertilizer, improved seed), adulterated pesticides, improper plant protection measures etc. All these factors in turn stem from lack of funds and technical know how. About 81 per cent farmers being small are not in a position to remove all these constraints because of lack of funds.

Like previous year, the catastrophic drought hit the agriculture this year as well. The acute shortage of water affected the performance of agriculture, which grew by 1.4 per cent in 2001-02, as against a decline of 2.6 per cent last year. Amongst the major crops, the wheat production is estimated at 18,475 thousand tons last year showing a decline of 2.9 per cent. However sugarcane has increased by 10.2 per cent in 2001-02 and estimated at 48,024 thousand tons in 2001-02 as against 43,606 thousand tons last year.

Micro finance for agriculture would also facilitate growth in employment and output. This would, however, require rapid and broad-based land and labour augmenting technological change in agriculture. This is because under such conditions institutional credit would have more favourable impact on employment and output growth.

The transformation from conventional to modern day farming methods demands a change in agronomic practices to enhance productivity per unit area of cultivation. This leads to cash based transactions for the purchase of quality seeds, chemical fertilizers, pesticides and mechanical equipment.

The small farmers whose farm income is small and family size is relatively large are generally constrained for want of funds to meet their farm input requirements like seed, fertilizer, pesticide, etc. To improve productivity and income of these tillers of the soil, who constitute more than three fourth of the farming community, appropriate measures should be taken on great priority basis for a country like Pakistan. Credit is also needed by the medium and large farmers in order to increase their productivity and for developmental purposes. To increase agricultural production, it is imperative to increase the level of use of agricultural inputs. However, the financial position of small farmers is such that they are not in a position to raise the level of inputs to the desired level without the availability of agricultural credit.

The government and a number of NGOs are operating and making concrete efforts to alleviate poverty, increase productivity and create employment for the poor people of Pakistan. In this regard the most successful is the Gramean Bank (Bangladesh), a bank for the poor that lends money to the needy poor men and women. Since its establishment in 1983, it has become a model that is unique, most productive and more effective in alleviating poverty.

After the success of Gramean Bank of Bangladesh, the micro financing programme has become very popular in developing countries as a tool to enhance incomes of farming and non-farming rural communities. It generates the opportunities of self-employment, boosts agricultural growth and provides the poor with basic amenities of life. In the light of successful experience of Bangladesh regarding the role of micro finance institutions in poverty reduction, increasing production and incomes, Pakistan launched Micro finance programme through National Rural Support Programme (NRSP) and Punjab Rural Support Programme (PRSP) in 1991 and 1997 respectively as non-governmental organizations.

The government of Pakistan initiated Rural Support Programmes (RSPs) in early 1990's for improving the social and economic conditions of rural masses throughout the country. The Rural Support Programmes are government-funded programmes that have been established to mobilize rural communities. The largest among these is the National Rural Support Programme (NRSP) followed by the Sindh Rural Support Corporation (SRSC), Balochistan Rural Support Programme (BRSP) and Punjab Rural Support Programme (PRSP). All these programmes follow the successful model of Agha Khan Rural Support Programme (AKRSP) based in Pakistan's northern areas and Chitral.



Poverty reduction has always been a priority area for Pakistan. The government is taking measures to address the problems of the poor and thus improve the socio-economic status of the population. These measures include establishment of Pakistan Poverty Alleviation Fund (PPAF), Micro Finance Bank (Khushhali Bank), and Food Support Programmes. Micro finance is being given for initiating sustainable economic activities and improvement of the agriculture sector.

The launching of Micro Finance Banks in the recent past is for the sole purpose of promoting micro businesses among disadvantaged segments of population by making available banking services matching their peculiar needs. These banks are poor-friendly and field staff has opportunity to guide the clients in practical matters such as crop production, disease prevention, animal husbandry and education.

Maximum loans must be available to small farmers because they have good repayment behaviour. Special care must be given to small farmers who constitute the backbone of agricultural sector.

Micro finance allows farmers to smooth their cash flow and provide their access to productivity enhancing techniques. It increases choice, empowers clients, like marginal and small farmers, who are mostly ignored by formal financial sector.

At the moment problem is that the credit which is disbursed to the farmers is not on the time of sowing or other applications and this credit must be according to the input requirement of farmers without any service charges. Credit disbursing agency should have regular check on the loanee for proper utilization of the credit.