The agriculture sector contributes 20.9% to the GDP and provides employment to nearly 44% of the workforce. According to the economic survey of Pakistan, the agriculture sector has four sub-sectors; crops, livestock, fisheries and forestry.
Farmers use credit vehicles to finance inputs in time and small famers particularly use it as a tool to enhance productivity. Agricultural Credit includes intermediate, short-term and long term credit for operating expenses, machinery use and land development.
A survey conducted by Agriculture University in Faisalabad identified various constraints reported by the borrowers in obtaining loans. The report highlighted that the :
1. Procedure of obtaining loans was lengthy and cumbersome.
2. Interest rate was too high.
3. Borrowers were not satisfied with the behavior of concerned officials
4. There were issues pertaining to loans not being given on time
5. Repayment procedures were rigid
Suggestions were made to improve credit utilization and minimize problems to enhance productivity for agricultural sector; these included reviewing the use of tools for agriculture credit.
To enhance agricultural growth in the country the State Bank of Pakistan has reviewed the provision of agriculture credit to farmers and reduced the overall policy rate.
The Finance Minister, Senator Muhammad Ishaq Dar urged the public sector financial institutions to review the mark-up rates for agriculture credit.
As a result of this, the heads of National Bank of Pakistan (NBP) and Zarai Taraqiati Bank Limited (ZTBL) assured that they would immediately finalize specific measures for increasing availability of agricultural credit and rationalize markup rates.
In agriculture sector, credit is the backbone and in order to transform subsistence agriculture to commercial the lending factors need to be reviewed in the light of above mentioned issues that the borrowers face.
M.K. Bashir in his research regarding agricultural credit in Pakistan, mentions that Agricultural Credit, in reality, is an integral part of the process of modernization of agriculture and commercialization of the rural economy and unless agriculture credit is systematically institutionalized for small farmers, agricultural development cannot be materialised.
Olagunju,an agricultural expert, further confirms this approach and emphasizes that; “The use of credit facilities would therefore translate to higher resource employment and capacity utilization, increased output and income, and poverty reduction in the rural economy, especially among the farmers and be helpful to increase the food production which would lead to an improvement in the welfare of the farmers.”